Rating expert reveals key consumer lending challenges of Nigerian banks
Managing Director and chief executive officer of CRC Credit Bureau, a Central Bank of Nigeria-licensed credit score reporting company, Mr. Tunde Popoola, has given insights on the core issues frustrating Nigerian banks in giving credits to small businesses.
In an interview, he said “Most of the issues that pose to be hindrances to consumer lending in Nigeria are historical, attitudinal and refusal to embrace new lending business models by our banks. One, there has always been the challenge of information asymmetry leading to inability to have proper knowledge of the consumer borrowers”.
He said the above situation “leads to difficulty in tracing and tracking customers by identity and by location. Secondly, consumer loan transactions are too small and regarded as expensive by the banks because of what is involved in underwriting, managing, tracking and collecting small loans”.
Continuing, Popoola noted that “Very closely associated with this is the adoption of wrong lending models. You cannot use corporate lending model and mindset to go into consumer lending. Consumer lending requires special lending skills, technology and mindset”.
“A major model of bank lending in Nigeria is personal banking and relationship management. This adopts a system of processing individual customer application and applying personal judgment based on personal knowledge of the customer. There is no bank that can grant loans to millions of customers with this model and mindset”.
On how the recession has affected Nigerians in repaying loans, CRC Credit Bureau boss stressed that “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 some time, 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.
He revealed that 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.
