The Managing Director/Chief Executive Officer, CRC Credit Bureau, a Central Bank of Nigeria-licensed credit score reporting company, Mr. Tunde Popoola, speaks about the banking sector and the rising non-performing loans in this interview with OYETUNJI ABIOYE.
How would you assess the consumer lending landscape in Nigeria overtime?
Since the advent of credit bureaus, some Nigerian banks have made attempts to grow their consumer loans portfolios. There have been introduction of consumer loan products such as credit card, auto or vehicle loans and mortgage loans. Some banks have also established dedicated desks to serve the Small and Medium Enterprises. We have witnessed some improvements in the number of beneficiaries of consumer loans as well as the total value of loans to the consumer segment of their loan portfolios. However, formal lending to consumers is still relatively very low in Nigeria. Nigeria has 22 commercial banks, over 900 microfinance banks, about 100 primary mortgage banks apart from other non-bank financial institutions, and yet, Nigeria has not experienced the kind of volume of consumer credit you will expect. The total value of loans to consumers by commercial banks is just about 10 per cent of their total loans. This is very low compared with over 40 per cent in South Africa and about 33 per cent in Brazil. Even though we have experienced growth in the value of total loans over time, the substantial value of loans still go to large corporates and high net worth individuals. About 30 per cent of total loans from our banks still go to the oil and gas sector. Less than five million bankable Nigerians are enjoying credit facilities at any point in time from commercial banks. When you situate this against the bankable Nigerians, you will realise that we have not even scratched the surface.
What are the challenges facing consumer lending in Nigeria and how can we tackle them?
As a player in the credit bureau segment of the economy, in what ways would you say the economic recession has affected people’s ability to repay their loans?
Clearly, recession has adversely affected the repayment ability and capacity of borrowers, both corporate and consumer borrowers. During a recession, people lose jobs, disposable income is compromised because of inflation, interest and foreign exchange rates rise, making it difficult to service on-going obligations, thereby precipitating default. A number of white-collar employees have lost their jobs and most of them, whom the banks had granted loans on the strength of their employment, are now unable to service and repay those loans. Quite a lot of other businesses have also closed shops and their employees are in the labour market. As stated earlier, about 30 per cent of bank loans in Nigeria were made to the oil and gas sector. We all are witnesses to what is going on in the oil and gas industry. The price of crude oil in the international market has declined, and for sometime, the crisis in the Niger Delta region prevented uninterrupted operations. Coupled with the devaluation or depreciation in the value of naira, the exposures by most oil-related companies became humongous. They were unable to service their loans. The total non-performing loans ratio in Nigerian banks have moved to double digit, far away from the CBN’s guided rate of five per cent.
What can be done to change Nigerians’ poor general attitude to loan repayment?
Most people don’t and will not willingly honour their obligations, unless there are compelling reasons, circumstances and processes. This is the situation all over the world. Nigerians are human beings, like any other people in the world. The near absolute compliance in loan repayment we see in some other parts of the world is largely influenced by the structures put in place to support both lending and borrowing and to compel repayment and honouring of financial obligations. It is important to have a reliable and functional credit bureau system where lenders can have unbiased and quality information about most borrowers. It is also important for all borrowers to know how the activities of credit bureaus can affect them, to have access to credit and to deny them access to credit, depending on honouring past loan obligations. The credit bureau system has been in place since 2009 and it has been very effective in curbing the incidence of frauds, serial defaulting, abandonment of loan obligations and cheque kiting. In May 2017, the Federal Government passed the Credit Reporting Act and the National Collateral Registry Act, two legislations which further strengthen the credit reporting system. Before then, the Nigerian banking system has established a unique means of identification of their customers, which is the now popular Bank Verification Number. So, we are in the right direction and it is a matter of time before we can fully address the incidence of willful default. We just have to keep on putting processes, structures, institutions and laws in place to dissuade willful default and make it difficult to have access to credit once you do not fulfill your current or past financial obligations.
At the macroeconomic level, the government needs to do more to empower Nigerians. Where workers are owed salaries for month, there is no way such workers would not default in their repayment obligations. Where the macroeconomic environment is harsh and industries are closing down, and workers are losing their jobs, such phenomenon will increase default in loans obligations. And an economic environment where interest rates are growing and the foreign exchange rates keep on changing would always s lead to poor repayment of loans, no matter the good intentions of borrowers. The government still has a lot to do. Finally, we need to strengthen our bankruptcy laws. Laws and legislation remain one area where we can still have a lot of improvement.
What is your assessment of credit risk management in Nigerian banks.
There has been significant improvement in credit risk management in Nigerian banks over time. Since the era of Emir Sanusi Lamido Sanusi as the CBN governor, the risk management function has moved to the executive floor. Risk management has taken its pride of place in banking and most other regulated financial institutions. There is now robust risk management structures, framework and practices in most of the banks. Governance generally around credit and general risks has been strengthened including at the board level. I will give kudos to the regulators and also the operators in this area.
However, there are significant rooms for improvement. Some new infrastructure and laws have evolved to further help banks to practise robust risk management. Some of the banks have still not adopted full application of credit bureau products and services in their credit risk management. Apart from credit reports, credit bureaus now provide other tools that can be used to properly dimension customer risks and also improve in managing existing credits or even embark on collections. Credit scores are now available to banks, and so are portfolio monitoring tools and products. I believe that the adoption and implementation of the IFRS 9 will further strengthen the risk management practice of Nigerian banks.
Your company, CRC Credit Bureau, is known as a credit assessment and rating company. Will the recent introduction of FICO Score in Nigeria by your firm makes things different?
What CRC Credit Bureau was doing before was that, we had reports of credit history, pattern of behaviour of the person (the borrower) etc in the last two to three years. With the introduction of FICO, everything has now been aggregated into figures. So with three digits, you can get everything. Again, in arriving at scores you can get all the information of the credit history. What volume of loan does an individual currently enjoys? How long have you been borrowing? What has been your payment behaviour? How much loan was taken and how much have you repaid? How much is outstanding? etc. These are some of the issues that have been considered to arrive at that FICO Score. With the scores, most lenders don’t need the reports anymore because the FICO Score is sufficient enough to determine everything.
Does this make the job easier?
Yes. It makes the job easier. It democratises access to credit and also depersonalises credit rates. Lenders can give money to borrowers who have good FICO Scores irrespective of who they are and where they come from. They can also automate the process which makes it faster; which means that within a few fours people can begin to get response about the level of applications they have submitted sourcing for loans. We are going to a stage where electronically loans will be processed in which case even on Sunday you can apply for loan and once the banks have electronic software that can help them to process it, you can have access to loans even on a weekend because all of them would have been automated with this new system.
What is a credit score?
A credit score is a three-digit number that is generated from information in a credit report to assess the creditworthiness of loan applicants. Examples of globally recognised credit scores are FICO Score, Vantage Score 3.0, and scores from Experian, Equifax and TransUnion. For instance, the CRC FICO Score ranges from 300 to 850 with 300 being the lowest score and 850 the highest. The lower a credit score is, the riskier it becomes for the individual to default when granted credit.
Why did your company partner the United States-based Fair Isaac Corporation?
The Fair Isaac Corporation pioneered analytic solutions such as credit scoring that have made credit more widely available. Founded in 1956 in the United States, FICO has over 50 years history of data and analytics experience. Partnering with FICO is in line with our philosophy of working with the best partners in our areas of interest, as we believe Nigeria deserves only the best.
Currently, FICO is the leading analytics software organisation, helping businesses in more than 90 countries make better decisions that drive higher levels of growth, profitability and customer satisfaction. Over 100 billion FICO Scores have been sold to date making it the most used credit score in the world. FICO’s groundbreaking use of big data and mathematical algorithms to predict consumer behaviour has transformed entire industries globally.
Nigerian Brand, JR Farms Acquires 11% Stake in Rwandan Firm
Nigerian Brand, JR Farms Acquires 11% Stake in Rwandan Firm
JR Firms, an agribusiness firm with headquarters in Nigeria, has announced partnership with Sanit Wing Rwanda through the acquisition of 11 per cent stake in the company.
The CEO of the company, Mr Rotimi Olawale, explained in a statement that the partnership was in furtherance of its goals to ensure food security, create decent jobs and raise the next generation of agrarian leaders in Africa.
The stake was acquired through Green Agribusiness Fund, an initiative of JR Farms designed to invest in youth-led agribusinesses across Africa.
Sanit Wing Rwanda is an agro-processing company that processes avocado oil and cosmetics that are natural, quality, affordable, reliable and viable.
The vision of the company is to become the leading producers of best quality avocado and avocado by-products in Africa by creating value across the avocado value chain.
With focus on bringing together over 20,000 professional Avocado farmers on board and planting of three million avocado trees by 2025 through contract farming, the company currently works with One Acre Fund in supply of avocado to its processing facility.
The products of the company which include avocado oil, skin care (SANTAVO), hair cream and soap are being sold locally and exported to regional market in Kenya.
With the new partnership with JR Farms- the products of the company will enjoy more access to markets focusing on Africa and the European Union by leveraging on partnerships and trade windows available.
Aside funding, the partnership comes with project support in areas of market exposure, capacity building, exposure and other thematic support to grow the business over the next four years.
JR Farms has agribusiness operations in Nigeria, Rwanda, United States and Zambia respectively.
In Nigeria, the company deals in cassava value chain processing cassava to national staple “garri” which is consumed by over 80 million Nigerians on daily basis, while in Rwanda, it works in the coffee value chain with over 4,000 coffee farmers spread across the East Central African country.
Shut Down Depots Selling Petrol Above Approved Price – Marketers
Shut Down Depots Selling Petrol Above Approved Price – Marketers
The Federal Government should close down depots that are selling petrol above the approved price, oil marketers said on Thursday.
National President, Independent Petroleum Marketers Association of Nigeria, Sanusi Fari, said the sale of petrol above government approved price by depot owners would soon lead to a hike in the commodity’s pump price.
Fari told journalists in Abuja that the government through its agencies such as the Department of State Services and the Department of Petroleum Resources should curb the development to avoid crisis in the downstream oil sector.
He said some private depot owners were selling at N165 per litre to independent marketers, way above the government stipulated price of N148 per litre.
Fari said, “Our challenge is the inconsistency in the pricing of petrol. Up till a week ago, government was still insisting that the February price for petrol remained unchanged.
“And most of the private depot owners are selling above the government stipulated price. As at today ( February 25, 2021) private depot owners are selling at N165 per litre to independent marketers.”
He added, “In the last six years, only NNPC imports refined products into this country and these tank farms buy their products from NNPC under a controlled price.
“This has affected our businesses seriously because government is insisting that we sell at the rate of N165, which is not going to work.”
The IPMAN president said filling station owners buy the product at N165 per litre from the private depots and incur other expenses such as transportation, rent, etc.
“So government cannot expect us to sell less than what we buy,” he said.
Fari added, “This is why we are calling on government and agencies that are saddled with the responsibility to control petrol pricing to urgently clamp down on depots that are selling above the stipulated price.”
The Nigerian National Petroleum Corporation, the country’s sole importer of patrol, recently stated that it never hiked the cost of petrol to depots.
It also enjoined the depot owners to sell the product at the approved rate and called on the DPR to enforce the stipulated price across the depots.
Nigeria Will Benefit Less From African Trade Deal – NESG
Nigeria Will Benefit Less From African Trade Deal – NESG
Nigeria and other resource-based countries will benefit less from the African Continental Free Trade Area than economies that are more diversified, the Nigerian Economic Summit Group has said.
The NESG, a private sector-led think-tank, said in its 2021 Macroeconomic Outlook that Nigeria could reap more gains through export diversification away from crude oil.
It said trade in Africa remained dominated by raw materials and less processed products, adding that on average, minerals and agriculture accounted for 44 per cent and 16 per cent of intra-African trade respectively between 2007 and 2017.
The NESG said, “Evidence has shown that African economies that are more diversified and have improved transport infrastructure, would benefit more from the trade pact than others that are resource-based and agricultural dependent.
“Putting this in context, South Africa currently accounts for 40 per cent of intra-African manufacturing imports. On the other hand, resource-based countries, such as, Algeria, Egypt and Nigeria – which collectively account for approximately 50 per cent of Africa’s GDP – contribute only 11 per cent to intra-African trade.”
“Another bone of contention is the issue of ‘rules of origin’, which constitutes a significant risk factor. This implies that protectionism practices by some countries could constitute a setback for the establishment of the ambitious single market for Africa. But there are several reasons to be optimistic,” it added.
The group said the World Bank estimates revealed that the AfCFTA would promote manufacturing exports over natural resources, agricultural and services exports, and that manufacturing exports would account for one-third of the projected total exports of $2.5tn by 2035.
It said, “Nigeria could reap more gains through export diversification away from crude oil, as manufacturing exports currently account for an average of nine per cent of the country’s total exports.
“This suggests that efforts should be directed at strengthening domestic value chains, particularly the agro-allied industrial base.
“To achieve this, there is a need to attract private capital, most especially, FDI, that would allow for knowledge and technological transfers.”
According to the NESG, for Nigeria to maximally benefit from the trade deal, there is an urgent need to also address transport infrastructure bottlenecks and provide improved logistics.
It said, “Finding a lasting solution to the Apapa gridlock by creating similar ports in other regions of the country, so as to ensure speedy clearance of consignments needs to be prioritised.
“Nigeria also needs to set standards for locally-made goods to enhance their attractiveness in the regional market.
“The Nigerian government as a matter of urgency needs to operate an efficient and corruption-free land border system, so as to guide against the importation of low-cost sub-standard products into the country.
“It is only when these and many more reforms are implemented that Nigeria can begin to reap the benefits of the trade deal.”
The group noted that owing to the outbreak of COVID-19, the implementation of the AfCFTA was postponed from July 1, 2020 to January 1, 2021.
It said, “The key goal of the free trade pact is to expand the volume of intra-African trade, which stood at 16 per cent in 2018 .“Till date, 36 countries, including Nigeria, have ratified the agreement. The trade deal is expected to create a single market with a combined GDP of $2.5tn and total population or market size of 1.2 billion.”
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