Credit history – The Nation

We welcome CBN’s order on banks

There is sound basis to see the Central Bank of Nigeria’s (CBN) order on banks under its regulation to obtain the credit history of customers before giving out loans as flowing from the need to bring the financial services sector up to speed in matters of credit administration.

The order, conveyed under the apex bank’s consumer protection guidelines on ‘Responsible business conduct”, among other measures designed to ensure that debt recovery processes were “courteous and fair, devoid of undue pressure, intimidation, harassment, humiliation or threat”, mandates the institutions to “obtain the credit history of consumers from the Credit Risk Management System, Credit Bureaux and other sources of credit reference to ascertain consumers’ outstanding debt obligations and repayment history before advancing credits.”

Also, going forward, lenders are to “inform customers of the debt recovery procedures in loan contracts; proactively engage and give customers early notice of outstanding obligations prior to the beginning of debt collection process; and initiate foreclosures only when other reasonable attempts to reach a resolution had been unsuccessful. The guidelines further mandate the lenders to, “give customers a minimum period of six months from the date of notice of foreclosure, the option of a private sale before commencing foreclosure except where the customer waived the right and ensure that the entire debt collection process was transparent and with active participation of the customer, including the foreclosure”, among others.

The development obviously says a lot about the sector’s slow embrace of fundamental reforms – coming after two earth-shaking developments in the financial services sector – the first by the Soludo-led CBN management tagged ‘Consolidation’ in 2004/5 and the second,  the Sanusi Lamido Sanusi-led CBN sanitisation of 2008/9. The suggestion here is that those building blocks of sound, modern and responsive financial services system have remained largely inchoate. That we still have an industry riddled with abuses by people charged with the duty of keeping custody of depositors’ funds; the same pervasive malfeasances that characterised the financial services system of pre-2009 would seem the greatest proof of this. We refer specifically to spurious credit decisions which continue to threaten the integrity of the institutions, while ensuring that delinquent borrowers are left with enough room to continually prey on the system.

Nigerians will readily recall the Skye Bank example, which after receiving a massive N350 billion intervention from the CBN in July 2016 could still not pull through as the money went down the sink hole – no thanks to the mismanagement of the entity by its board and management – leading to the inevitable hammer by the apex bank in September 2018.

Much as one might consider the latest measure by the CBN belated, it is certainly not too late. Notably, a lot of progress has certainly been made in this direction, particularly with the basic infrastructure of the Biometric Verification Number (BVN) already effectively in deployment; we see the platform as probably as good as any to begin with. Moreover, it is hard to conceive of a credible consumer banking platform without those guidelines which spell out the rights/obligations of both the lender and the consumer of financial products.

For the sake of both the institutions and the potential borrowers, the system needs to have those safeguards in place right now and working optimally – to ensure that those deserving of credit are availed it, and that those who have had cause to abuse the credit system at one time or the other are made to pay hefty price. For the industry in particular, it comes with the calm assurance that all activities in the financial market are seamlessly interlinked; a sound credit bureaux infrastructure means the industry is at once assured that all players are captured on the radar of the regulator, and that every single credit decision passes through the same platform.

It certainly will be one sure step to reverse the current situation in which those in dire need of credit facilities would sometimes have to pass through the eye of the needle – so to speak – to get it while politically-exposed persons could draw from the system to their heart’s intent even without consequences when they default.

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