NPL
Non-Performing Loans (NPL) remain a major risk in every country with a lending industry. This menace is certain to be high where viable measures to prevent reckless lending and over-indebtedness are lacking. Such economies experience disintermediation of bank-system lending caused by the erosion of banks’ profitability, stagnation of economic resources particularly labour and capital with low productivity.
NPL reduction is enhanced by credit bureaus. India, for example, introduced her Credit Information Bureau (India) Limited – CIBIL incorporation in 2000 and had NPL to total loans dropped to 2.8 percent in 2007 from 10.4 percent in 2002. In Nigeria, the level of non-performing credit to total credit has dropped significantly to 4.5 percent in 2013.
Popoola who delivered a paper on ‘Role Of Credit Bureaus In Effective Risk Management’, at the second annual conference of the Institute of Credit and Collection Management of Nigeria, noted that Nigeria has been credited with a lot of improvements.
Credit penetration which was just about 5 percent has moved to over 30 percent in 2013. By the 2015 Doing Business Report of the World Bank, released recently, Nigeria now ranks among the top five economies in Africa in the ease of getting credit.
Nigeria jumped 73 places to 52nd position out of 189 economies in the ease of obtaining credit. The World Bank attributed the impressive ranking of Nigeria to the licensing of private credit bureaus supported by a functional operational guidelines and the increase in the coverage rate of the Nigerian reporting system. This is a valid and encouraging news, he said.
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Credit bureaus have helped to minimise challenges lenders face and positively influence risk management in several ways. Services of these bureaus, such as the Credit Information Reports, promote financial intermediation and inclusion as lenders are keen on granting credits to worthy individuals and corporate organisations with good payment history and with less emphasis on physical collaterals, thus minimising exposure to risk for all parties. Borrowers also now have opportunity to build good reputations which enable them negotiate favourable credit terms.
CRC Credit Bureaus already has presence in seventeen states of Nigeria including the FCT. “And as Nigeria prepares to implement Basel III, the credit bureau industry is strategically placed to play our role as an enabler.
With the national identity management and the bank verification number (BVN) projects, we will be able to further support the democratisation and automation of access to lending. We look forward to a Nigeria where consumer loans are driven by auto processing. We also look forward to risk-based risk asset pricing where borrower’s riskiness, as determined by credit bureau’s information and scores, would determine his/her loan’s price”.
However, Credit bureaus in Nigeria are still faced with the challenge of unique identification of borrowers, data quality, data submission and usage. Nigeria credit bureau would perform better with the availability of unique identification and collateral registry, two projects that are already on-going.
The two projects, when available to credit bureaus, will enhance data quality and make possible the introduction of various other products that can enhance risk management process for lenders generally.
HOPE MOSES-ASHIKE
