As banks rave to expand loan books to meet the Central Bank of Nigeria’s minimum 60 percent loan-to-deposit target, focus is returning to credit bureaus and the role they can play.
The directive given by the apex bank has seen lenders partner credit bureaus to map out how credit facility can be best disbursed, and also to prevent asset quality from worsening as banks have not fully recovered from the surge in bad loans caused by 2016’s economic recession.
But credit bureau service in Nigeria is still at infancy, and has a long way to go to match the efficiency of those in advanced climes, according to financial analysts.
The CBN’s guideline is expected to create an avenue for credit bureaus to to supply information about the creditworthiness of many small businesses, which banks may not have.
However, some analysts believe that banks’ collaboration with credit bureaus will be more meaningful only if lenders are cautious to give credit.
“There are two ways to this. The credit bureau can either continue their job of ensuring creditworthiness of individuals are accurate as possible, implying it calls for lot of work on the part of the bankers to search high creditworthy customers to take these loans,” said Gabriel Ilori, a Lagos-based banker.
“But if it comes to a situation where they want to push for loans, they will not care if borrowers are creditworthy or not, but this might raise non-performing loans,” Ilori stated.
Fitch ratings, a leading global credit rating agency, recently said that the directive is credit negative for banks, and it’s unlikely that there will be sufficient demand from good-quality borrowers for banks to meet the target without relaxing their underwriting or pricing standards.
Credit bureaus came to the fore in Nigeria about a decade ago, to promote responsible lending and borrowing.
The CBN supports their operations by compelling banks and other financial institutions to use at least two credit agencies. Their job is to facilitate the ease of doing business by significantly improving access to credit particularly for disadvantaged sectors of the economy.
According to the World Bank, with the introduction of credit bureaus, small businesses reporting high financing constraints reduced from 49 percent to 27 percent, also the probability for small businesses to get bank credit rose from 28 percent to 40 percent.
Nigeria ranks fifth in Africa on the Getting Credit Indicator largely as a result of the efforts made by the Presidential Enabling Business Environment Council (PEBEC) initiatives of which the credit bureaus played an integral role.
Experts say chances are low for new credit bureaus to come on board even as banks might need services more.
“The outlook is not promising enough to see emergence of new credit bureaus because the fundamental challenges remain that banks in as much as they still want to create credit to those sector, they are still wary about the high risk of individuals and SMEs,” said Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers.
Banks are now coming up with cheap loan products for micro-traders and small retailers, bearing in mind that most of them rate below the credit requirement for conventional credit facility.
This is also one of their strategies to deepen financial inclusion in Nigeria by enabling the unbanked and underserved population have access to diverse banking services.
As banks race to boost lending, the economy might not see emergence of new credit bureaus as banks are investing heavily in digital infrastructure to have borrowers’ information at the tip of their finger.
Efforts of banks to bringing the underserved and unbanked people into the formal financial system put them in possession of needed information for credit requirement than relying on credit bureaus.
Another dent for potential credit bureaus is whether banks can trust their services as much as they are confident about the operations of the well-recognized players like CRC Credit Bureau Limited and CR Services Credit Bureau.
“They might have to sit on a round table to discuss with their processes. It’s just like property valuers, you don’t just pick any, because some do shady business,” Ilori posited.
Israel Odubola
