FINANCIAL sector’s stakeholders have prescribed the promotion of effective credit reporting and financial inclusion, to ensure fool proof risk management strategy in banks.
The stakeholders made the assertion in their separate presentations at the first National Credit Reporting conference, with the theme: Enhancing Financial Stability and Inclusion, Through Credit Reporting.”
The conference was organised against the backdrop of the near collapse of the nation’s banking system recently, as a result of the accretion of toxic assets, made possible by lack of corporate governance structure.
The Central Bank of Nigeria (CBN)—a co-organiser of the conference with Business Development and Investment Limited, said that in an effort to improve credit risk management, it has communicated all deposit money banks through two circulars that it is mandatory to base their lending decisions on available credit information from at least two of the three credit bureaus.
CBN Governor, Mallam Lamido Sanusi, who was represented by his Special Adviser and Director of Risk Management, ‘Folakemi Fatogbe, explained that weak credit reporting system constrains lending and strain to the overall stability of the financial system. This was visibly evident in the last financial crisis that rocked the banking system in 2009.
He noted that the system has now come to stay, with ability to facilitating access to financing through information sharing and lending based on good decision, but added that compliance will be strictly enforced as auditing of the processes of lending would be routinely carried out to check infraction and possible sanctions.
Sanusi reassured that the single identifier plan for all banks’ customers is speedily underway, adding that in an effort to strengthening credit bureaus, it invites them from to time to time to enhance their knowledge and information sharing strategy.
“Presently, the system has about 100,000 borrowers in its data and a total of about N3.56 trillion in total quantum of loans and 10 years on, the apex bank has released the guidelines for the licensing and regulation of credit bureaus in the country. Three credit bureaus have been licensed so far.
“A lot of work has been done to ensure the present stability that we are experiencing. The ratio of non-performing loans has considerably come down to less than four per cent as at April 2013, compared to 35 per cent before now. We have also introduced a cap of five on non-performing loans for all banks,” he said.
But the Business Development and Investment, represented by Mr. Ubong Awah, said that as part of the solutions to the problem and proper structure of the financial system, regulators and stakeholders have committed to developing a robust financial infrastructure for the nation.
“A key component of the initiative is the credit reporting system that became established in 2009. Since then, the credit bureaus have been about their mandates and have been able to warehouse credit information on over 10 million data subjects. Though commendable and good beginning to a transformative journey, it is grossly underdeveloped credit system, given 55 million active population,” he said.
The Managing Director of First Bank Plc, Bisi Onasanya, in his presentation titled: “Promoting Financial Inclusion and a Responsible Credit Culture Through Credit Reporting,” said that efficient financial system promotes economic growth.
Onasanya, who was represented by the bank’s Head, Credit Risk Management, Omolade Olawore, noted that presently, there is low productivity in the economy, with youth employment not growing, hence opted for effective financial system that could help to boost all economic factors.
He routed for the development of the financial inclusion strategy, which is aimed at bringing financial services to the poor and disadvantaged at efficient and cheaper cost.
According to him, this means the development of right products and calculation of risks involved, structured to manageable size, for the group, which included domestic workers, petty traders along the road, rural farmers and dwellers, among others, that make up the 75 per cent of the unbanked in the country.
For the Credit Bureau and Risk Management Advisor, International Finance Corporation (IFC), Peter Sheerin, the development of credit bureau system in the country has become critical, but presently mitigated by various challenges.
According to him, reluctance/resistance to data sharing among banks, lack of capacity appreciation of the value of credit bureau for risk management, data quality issues, lack of enabling environment- legal and regulation, enforcement of credit reform and regime and weak consumer protection, have impeded the system’s contributions.
However, the Chairman of Credit Bureau Association of Nigeria, Taiwo Ayedun, said that private credit reporting started in 2001, but took a dramatic turn in 2008, with the establishment of its regulatory framework, including microfinance policy regulatory and supervisory guideline, though reviewed in 2011.
According to Ayedun, three licensed credit bureaus have emerged- XDS Credit Bureau Limited; CRC Credit Bureau Limited; and CR Services Plc, with the permission to serve any creditor with defined permissible purposes to access consumer credit files. This will also be with the consent of the customer.
“While the positive impact of the credit bureaus is already being felt, the widespread impact in terms of expanding credit opportunity to hundreds of thousands of small businesses, millions of consumers and helping banks to diversify risk are yet to be felt greatly.
“Infrastructural challenges, such as reliable consumer identification and proper residential address must be solved by the industry and government. Lenders must also automate the lending process and embrace predictive analytics to target the right customers, manage cost and make fast decisions.
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