Mr. Tunde Popoola is the Managing Director/ Chief Executive Officer of CRC Credit Bureau, and the Chairman, Credit Bureau Association of Nigeria. He bares his mind on the credit side of political leadership, and how it can jeopardise the chances of potential public office holders. NGOZI AMUCHE captures his thought. Excerpts
What can credit industry operators do to help the electorate in making appropriate leadership choice, especially in this political dispensation?
Unfortunately, financial services generally are a private affair between the providers and the consumers. 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 Asset Management Company, 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 of Nigeria 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 back loans legitimately granted, it attests to the character of such a person. Our common wealth is not safe in the hands of such person and is really morally unfit to hold political office.
Furthermore, I believe we need to be very serious about our bankruptcy laws because 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 to be holding political offices.
Less than 2,000 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
Huge non-performing loans are threatening the banking industry and the economy. How much of banking sector failed credit do credit bureaus capture, especially your company?
We do not envisage the collapse of any bank in Nigeria in the near term. The regulators, made up principally of the Central Bank, supported by the Nigeria Deposit Insurance Corporation are doing a lot of commendable jobs in supervision, regulation, stress testing and risk management. Nigerian banks are competing favourably in the area of capital adequacy and other parameters. Don’t forget that the Nigerian economy has just exited recession technically and going back to a positive growth phase.
It is not unexpected that the banking system in an economy in recession would be badly hit. Economic agents in an economy under recession are faced with high interest rates, devaluation or depreciation of local currency, loss of jobs, low demand for products and services, etc. All these affected Nigeria during recession between 2014 and 2016, impacting the capacity to repay loans and or take on new loans and leading to inability to meet repayment obligations and deterioration in quality of assets and balance sheet of banks.
Our observation was that mostly affected sector during recession was oil and gas. Because they also have huge exposures in foreign currency denominated loans, recession increases the level of non-performing loans of the affected banks. Since the Central Bank has achieved stability in the forex market, the worst scenario is over.
What do credit experts mean by five C’s of credit?
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.
Are the 5C’s of credit of any relevance in making the right choice of political leadership in the country?
Character attests to the willingness of the debtor to repay loans and settle his obligations and 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.
How further away is Nigeria’s transition to credit economy given the fact that the same credit industry professionals who promote credit economy to spike growth are not comfortably disposed to credit transactions like ordinary Nigerians?
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.
The Nigerian banking system still has high credit concentration with few customers accounting for a significant value of loans. Less than 2,000 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 the entire 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.
Let’s talk about the National Collateral Registry which Nigeria established last year?
Yes 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 loans.
