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Bad loans: CBN should compel banks on credit bureau guidelines

By Babajide Komolafe
Managing Director/Chief executive Credit Registry Services, the nation’s first credit bureau, Mr. Taiwo Ayedun has said that the most effective way for the Central bank of Nigeria (CBN) to address the problem of bad loans in the banking industry is  to enforce its guidelines that banks should use credit bureaus.

He said the CBN publishing debtors in the papers hence employing what I call social accountability. It’s like the effect of gossip, it keeps us in check, and you don’t want somebody to spread bad news about you. So it’s the same reason why they publish those names in the papers, to expose debtors, to make them feel ashamed. But it is not an effective method on a day to day basis. First of all to make this method works, the CBN must publish those names on a regular basis, and then the risk managers need to take their time to search those lists each time they want to give loans. A much more effective way is to ensure those information make their way into a credit bureau’s information system and banks as a matter of choice should make a check every day because it is automated.
It would be recalled that the CBN last year issued operational guideline for credit bureaus. Section five subsection three to four of the guideline states that, “All financial institutions must have data exchange agreement with at least two (2) credit bureaus.  All banks must obtain credit report from at least two (2) credit bureaus before granting any facility to their customers.”

Fielding questions from journalists on recent development in the banking industry, Ayedun said, “Information sharing is so fundamental to clean up the mess.
Nobody in his right mind will see evidence that somebody is owing elsewhere and is defaulting and you go ahead and you still go and give him loan. It’s not possible because your conscience would not allow you. You will say to that individual go and pay up the loans you owe. But in the absence of information sharing bank will just be making ignorant decisions. So this information sharing is very necessary
We all need to share the blame. All of us blame goes to mangers of banks who do understand that information sharing is in their best interest and make sure that top down their loan assessment process must include credit checks on both corporate and individual customers. It’s in their best interest.

The government of Nigeria, they have to share the blame as well because part of the problem that banks believe is hindering them is lack of unique identifier. Yes it’s true but there are some solutions in place. Just like the CBN’s CRMS system and our system there is no unique identifier but we have evolved solutions that can help these banks and they should stop crying wolf. But the government still have some blame because it has not provided that infrastructure that everybody believes is necessary-unique identifier. It’s most especially useful for the non high net worth customers.

Because the very big people in society cannot change their names but me and you can change our names because we are not as well known as this guys. So unique identifier will help in that respect but we have evolved solutions to it.
CreditRegistry invented the world’s first credit bureau that integrates biometric as a means of identifying people. Today every one of our subscribers can supply photographs of their customers into our systems. They can search our systems using photographs. So if you go to many bank, and because there is no unique identifier in Nigeria, give them various variations of your names. You know the work of a credit bureau is to pool your entire loan from all the banks together under one report. But in the absence of one unique identifier it is very difficult to do because names can change but for most of us our faces don’t change frequently unless you do surgery but it is expensive. So we said let us implement a technology in Nigeria so that banks when they are giving us information of the borrower they can also give us the photograph of the borrower. Now if they give us the photographs, if GTB does it, Zenith Bank does it, we would be able to merge all the loans of that individual together under one report. So that if that individual goes any bank to take a loan all that the bank needs to do is to search for the photograph and they would get the report. That system works today in our system

The CBN is trying because they have come out with regulation , they have licensed  credit bureaus, and they have required banks to utilise credit bureaus at least two bureaus. But CBN has to enforce its guidelines that banks should use at least two credit bureaus. Part of what Governor Sanusi is doing is to enforce the guidelines that are in the books. That bank must start utilising credit bureaus. That for every single loan they book they must do a credit check on it”


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