Credit Bureaus Under Scrutiny Over CBN’s Policy On Borrowers

The Central Bank of Nigeria’s (CBN) new policy stance on fraudulent practices in the banking industry, occasioned by loan and related offences, among others, may have put the credit bureaus under scrutiny, BusinessDay investigations have shown.

While the CBN’s promise of pursuing a zero-tolerance policy on fraudulent borrowers is expected to complement the activities of the bureaus, the firms need an up-to-date information technology system and strategic thinking to ensure that reliable credit history of all borrowers is obtained, while also ensuring that defaulters don’t have access to loans until they meet their obligations.

This is coming just as the roll-out of the Bank Verification Numbers (BVN) begins this week. During the pilot phase of the project, over 7,000 Bank Verification Numbers were issued by 21 deposit money banks and the Nigeria Inter-Bank Settlement System plc (NIBSS) to existing internal bank customers.

The BVN initiative involves the capturing of an individual’s basic biometric data which include the facial image, the 10 fingerprints, as well as other unique features. It will utilise the biometric technology system for verification and secure authentication of bank customers’ identity and ultimately serve as a means of authenticating customers’ identity in the course of banking transactions.

It will give the bank customer a uniform and single identity, called the Bank Verification Number, which will be acceptable across the Nigerian financial system, as all other bank accounts operated by the individual would be tied to that BVN, so as to ensure accountability, check identity theft, reduce exposure to fraud, enhance credit advancement to bank customers, protect customers’ accounts from unauthorised access, and also encourage financial inclusion.

Godwin Emefiele, CBN governor, had said at his maiden media briefing that his regime would clamp down on fraudulent borrowers through establishment of commercial courts to adjudicate on loan and related offences.

“We will pursue a zero-tolerance policy on fraudulent borrowers. We will collaborate with commercial banks to significantly improve the credit culture in the Nigerian banking system,” Emefiele said.

He also said that the apex bank’s focus would be directed at serial debtors who access loans from different banks and default on all of them, even when they have the means to pay.

“Going forward, the CBN will work towards reducing the effect of information asymmetry in the credit market. In this regard, we shall enhance the operation of credit reference bureaus,” he said.

But some analysts said at the weekend that the three bureaus – CRC, Credit Registry and XDS – would need to synchronise their operations so as to be more visible and impactful on the industry.

“The bureaus must do more than what they are doing now to instil confidence in the system through effective collaboration with the banks and ensuring that the data is made available to banks as and when due, because as it is now, their impact is not being felt as fraud cases perpetuated by serial borrowers are still on the rise,” said an industry operator.

The CBN’s report for the first half of 2013 showed that 2,478 fraud and forgery cases involving Nigerian banks valued at N22.4 billion were recorded. The figure was higher than the 2,300 recorded cases valued at N7.1 billion in the corresponding period of 2012.

“It will be great if commercial courts can be set up at the instance of the new CBN governor to expeditiously handle cases on loans and related transactions. It will complement credit bureau function, which is to keep record of all borrowers and ensure defaulters don’t have access to loans until they meet their obligations,” said Bolade Agbola, executive director, Cashcraft Asset Management.

Ayodeji Ebo, head, research, Afrinvest, said the new CBN policy meant that the credit bureaus would have to be further fortified to serve as the central tool for executing these policies, maintaining the list of blacklisted loan defaulters.

“The bureaus will be the reference point acting as a database for all proposed and issued credit facilities where issuers can confirm the credit status of prospective borrowers. In addition, the cumulative credit exposure of the borrower will be easily assessed, hence minimising the level of debt delinquency,” Ebo said.

He said this would also mean that the bureaus would require strategic information optimisation processes that ensure a real-time detailed coverage of the banked and unbanked population is maintained.

“Overall, this will keep the NPLs within the CBN’s 5.0 percent threshold as the apex bank will encourage banks to increase retail lending to foster growth,” he said.