Non-performing loans remains major threat to Nigeria’s financial stability-CBN

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele on Wednesday disclosed that though the reform policies of the Bank boosted by availability of credit information have been yielding the needed results, unfortunately, the risk of Non-performing loans (NPL) remains a major threat to the nation’s financial stability.

The CBN governor disclosed this while declaring open the 3rd National Credit Reporting Conference with the theme “Credit Bureau and Access to Finance: Nigeria’s Success Story” in Lagos.

Emefiele disclosed that for instance, the Financial Stability Report, released in May 2016, showed that NPL in the banking system rose sharply to N649.63 billion an increase of 78 per cent year –on-year basis.

He however disclosed that while the situation has remained worrisome for the CBN, additional measures are being taken to identify productive sectors of the economy with a view to channelling credit to these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are inclusively achieved.

Speaking on the theme, “Credit Bureau and Access to Finance: Nigeria’s Success Story”, Emefiele  said to stem the worrisome trend, the apex bank, being saddled with the responsibility of ensuring the stability of financial system has been formulating policies aimed at achieving a sound and stable financial system.

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For instance, he said CBN has recently approved the payment of one-off sign on fees with Credit Bureaux for all the microfinance banks and other micro financial institutions licensed by the CBN in order to support effective use of the infrastructure provided by the private credit bureaux with a view to deepening the subsector.

According to him, CBN has made it mandatory for all financial institutions to have data exchange agreements with at least two credit bureaux as all banks are required to obtain credit report from at least two credit bureaus before granting any facility to their customers whilst quarterly portfolio checks must also be carried out to enable them determine borrowers’ current exposure to the financial system.

Emefiele recalled that the CBN, in January 1998, had established the Credit Risk Management System (CRMS), a public credit registry operated by the apex bank that banks are required to report to and check-up all credits above N1m.

To him, in furtherance of the powers conferred on it by Section 57 of the Central Bank of Nigeria Act, 2007, which to license and regulate credit bureau, released the Guidelines for the Licensing, Operations and Regulations of Credit Bureaux in Nigeria in 2008, in 2009, three privately owned credit bureaux – XDS Credit Bureau, CR Services Credit Bureau and CRC Credit Bureau were subsequently licensed.

While declaring that the year 2016 marks the25th year anniversary for credit reporting in Nigeria and no doubt it had contributed to the resilient financial system that is propelling the growth and development of our nation, Emefiele charged financial reporters to double their efforts in the area of credit information sharing.

He said it has long been established that a weak credit reporting regime constrains lending and poses a threat to the overall stability of the financial system.

He noted that while Credit reporting remains one of the major means of growing credit in an economy, it also acts as a social accountability mechanism that promotes responsible behaviour in the credit and financial markets.

He recalled that credit reporting in Nigeria has its antecedents in the financial crisis of the late 1980’s and early 1990s when large quantum of non-performing credits threatened the banking industry.

That era, he said, witnessed persistently rising incidence of abandoned facilities in Nigerian banks with attendant losses and erosion of banks’ capital.

The CBN Governor expressed his happiness that the National Assembly, in the same line of thought with the CBN, is considering a bill on National Credit Reporting that will bring all stakeholders under one regulatory platform.

He said in order to make the proposed National Credit Reporting Bill being sponsored by Senator Rafiu Adebayo Ibrahim meets international standards, the CBN, in collaboration with IFC and CBAN has reviewed the draft Bill and articulated some amendments to the document.

“The recommended amendments would be presented to the National Assembly during the public hearing on the Bill for adoption into the Credit Reporting Bill.” He said.

Disclosing that so far, the credit bureaux have been recording steady increase in the number of registered borrowers, Emefiele said, “From a mere 78,189 in December 2010, the total number grew to 18,640,000 in June 2012. The number as at 30th June, 2016 stood at 33, 456, 922. I want to commend the bureau operators for this feat and charge them not to rest on their oars as we still have more grounds to cover if we must have a robust credit reporting system in Nigeria.”

He said with the just concluded the Bank Verification Number project, when the BVN is made available to the credit bureaux, this will no doubt increase the quality of the credit reports.

He noted that in collaboration with other stakeholders, CBN has designed a uniform data reporting template for provision of data by credit providers to the three credit bureaux as this has reduced the problems associated with provision of data in several different templates to the credit bureaux.

 

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