The Managing Director and Chief Executive Officer of CRC Credit Bureau, and the Chairman, Credit Bureau Association of Nigeria (CBAN), Mr Tunde Popoola, in this interview disclosed how bank accounts in debit, whether dormant or inoperative, can put the account holder in credit mess; why people seeking public offices must not be credit defaulters and must also certify one of the 5 C’s, (credit conditions) and other topical issues. Excerpts:
By Peter Egwuatu
Can banks’ dormant, inactive account holders earn negative record and be flagged as bad debtors by credit bureaus even when they did not borrow money from banks?
Financial institutions report all customers account in debit, at the end of every month to the credit bureaus to which they have data exchange agreement. And the law mandates each bank to have this relationship with at least two credit bureaus. Therefore, it does not matter whether the account was dormant or inactive or whether the amount was an authorized loans or not, as long as it goes into debit, it becomes due for the customer to settle it.
Frankly, a lot of banks’ customers are cut unawares because of this as they are denied credit on account of un-serviced accounts that have gone into debit and which, in most cases, they are not aware of. In some instances, the customers don’t remember that they had such accounts. Some have lost good and profitable business opportunities on account of denying them credit by banks because of this.
We have always encouraged bank customers to obtain their credit reports and do a credit check of themselves from time to time. In the first instance, every Nigerian is entitled to one free credit report in a year from each of the credit bureaus. I encourage bank account holders, especially those with current account, to always request for their credit reports.
What other services does credit bureau provides?
In addition to this, CRC Credit Bureau has developed other services that Nigerians can leverage on to monitor their credit status all the year round. You only need to approach the credit bureau, which can easily be done through our website. It is not good that you are caught unawares when you are badly in need of a loan, employment or board appointment only to discover that there are unfavourable transactions submitted against your name. Regular credit check is akin to embarking on regular medical check up to prevent surprises on our health.
How much of banking sector failed credit do credit bureaus capture, especially your own?
CRC Credit Bureau captures all credits in Nigerian banks because all of them are subscribers to our company. And the law mandates them to submit information of all obligors, no matter the amount and classification. So, we believe that our credit bureau has information on all loans in banks in Nigeria. AMCON and NDIC are the custodians of bad loans taken over from commercial banks and dead banks in Nigeria, respectively. Both institutions report the bad loans in their custody to the credit bureaus.
Are the 5C’s of credit any relevant in making right choice of political leadership in the country?
Well, the five C’s of credit refer to the basic factors a lender or creditor consider in appraising a borrower for the purpose of granting credit or enjoying access to a product under a deferred payment arrangement. Bankers, over the ages, have found a way of grouping these appraisal yardsticks under five conditions now popularly known as the 5C’s of Credit. These are the debtor’s Character, Capacity, Capital, Collateral and Conditions.
Character attests to the willingness of the debtor to repay loans and settle his obligations and it is always measured by examining how the debtor has performed in similar conditions in the past. Bankers believe that this is the most important test, among the five elements as this is the factor that tests the person’s integrity, ability to honour obligations and be bound by his words and promises.
This factor is also the most relevant in appraising a candidate for political office. Of all the five items, Character seems to be the most important here and of course to the banker.
In Nigeria today, the banking system uses the services of credit bureaus to examine the repayment pattern of performance of their intending borrowers. The credit bureaus provide such information through credit reports and credit scores. These two products summarize, for the bankers, customers’ ability and willingness to pay based on the available data in the credit bureau repository. Some banks have also developed internal scoring solutions to dimension the character of their customers.
The 2017 National Credit Reporting Act lists the permissible purposes for which data subject information can be accessed in a credit bureau. While it permits its usage for employment opportunities into a board of a corporation and for normal employment, the law does not indicate that it can be used to screen aspirants into political offices or appointments.
Today, nobody holds any strategic position in any bank in Nigeria as an executive management staff, executive director, chief executive or non-executive director without having a clean credit report from the credit bureaus operating in Nigeria. A lot of people have missed these strategic appointments because of poor credit report.
Consequently, to the extent that this is now used to appraise persons for board appointments, I am of the view that it should be extended to appointments in government. Screening using Credit reports of persons for appointments as commissioners, directors, CEOs and board members into the public sector should be embraced. The significance of this is that, chronic debtor or fraudulent persons already captured by the credit bureaus cannot aspire to these strategic positions.
How do credit industry operators help the electorate to make appropriate leadership choices in 2019?
Unfortunately, financial services generally are a private affair between the providers (banks) and the consumers (their customers). It is difficult to subject transactions of individuals in the financial system to political consideration and evaluation.
However, if a bank customer refuses to pay a loan which has then been transferred to AMCON, I believe such can be used as good information by the electorate. AMCON is a public institution, funded by tax payers’ money. Furthermore, the Central Bank directed all banks to publish the names and amount owed by chronic debtors and loan defaulters in newspapers, every quarter. And the banks have been doing that for more than two years. The general public or the electorate can use this information as a tool to appraise candidates vying for political offices.
If a person or his company is a chronic debtor who refuses to repay loans legitimately granted, it attests to the character of such a person. Our common wealth is not safe in the hands of such persons and are really morally unfit to hold political office.
Furthermore, I believe we need to be very serious about our bankruptcy laws. A lot of persons and companies where they are directors should have been declared bankrupt. And a bankrupt person cannot hold political office. But bankruptcy is not treated with seriousness in Nigeria, making some persons who should not be near public resources holding political offices.
How further away is Nigeria’s transition to credit economy?
Nigeria is so far away from transiting to a credit economy, yet so near. We are far because credit penetration is still low in Nigeria, among the lowest in the world. When an economy is cash-based, it limits consumption, investment and production as people can mostly purchase and have only what they are able to save for.
In a credit economy, consumers and investors are in the best of the world as consumers can easily enjoy items that improve their economic and social being, while paying for it over time. A credit economy inspires consumer effective demand, which then propels production and employment opportunities for factors of production.
Nigerian banking system still has high credit concentration with few customers accounting for a significant value of loans. Less than two thousand customers account for over 80 per cent of the loans granted by our commercial banks. Credit to consumers and small businesses remain insignificant in terms of value.
It is a shame that access to credit in Nigeria is still low, despite all the credit infrastructure available. And this is why I said that it is far, yet so near. It is far because credit penetration is still a long way. The fact that financial inclusion is still below 70 per cent implies that a lot of adult Nigerians are still not yet in the banking system. And you will access bank credit only if you are bank customer.
But it is near as Nigeria is one of the few countries in Africa and in fact in the world that have all basic credit infrastructure that can propel and unleash access to credit for consumers and SMEs. Nigeria has licensed credit bureau and a rich credit reporting law to boost lending with confidence and prevent information asymmetry.
Last year, Nigeria also established a national collateral registry that empowers use of movable assets like equipment, machinery and receivables as collaterals. This means that SMEs don’t need tangible assets and landed properties to access loans. They can use their working tools to pledge and obtain loans.
With these developments, Nigeria attained sixth position in the ease of access to credit in the world among the 189 economies that were surveyed in 2018. We attained the best in ranking in the particular item among all the indices ranked in the ease of doing business. What is left is for our financial institutions to leverage on the availability of these tools and infrastructure to develop products that would unleash access to consumer and small business loan.