Low consumer credit adoption points to problem of KYC

Low consumer credit adoption points to problem of KYC

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Consumer credit and mortgage may likely be the focal point of the banking sector activities going forward. This follows the pronouncement by Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) at the last Monetary Policy Committee (MPC) meeting in May 2019.

The MPC also felt that the consumer market and mortgage trading market must be catalysed in Nigeria. Consumer lending is a type of financing centred on individual and household consumers. It includes home and auto loans, as well as personal loans extended to people who use the funds for individual or family purposes.

“One of the inhibiting factors to growth is the fact that we have not been able to effectively jump-start the credit and mortgage businesses in Nigeria. Management will decide on how to put in place regulation that will assist people or banks to ensure that consumer credit is improved again in Nigeria,” Emefiele said.       

At a roundtable with the CBN governor in Lagos last weekend, private sector leaders including Aliko Dangote, Africa’s richest man/owner of Dangote Group and  Jim Ovia, businessman/founder of Zenith Bank laid emphasis on consumer credit and said banks were doing their best on it.

Ovia noted the process had been slow because of the challenges associated with people given accurate data for Know-Your Customers (KYC) process.

The CBN in January 13, 2013 introduced the three-tiered KYC to banks and other financial institutions. The three-tiered KYC seeks to implement a flexible account opening requirements for low-value and medium-value account holders subject to cap and transaction restrictions.

It is hoped that through ‘further discussions’ banks might increase their appetite for consumer credit extension, Razia Khan, managing director, Chief Economist, Africa and Middle East Global Research, Standard Chartered Bank, London, said.

However, the consumer credit survey for the first quarter 2019, published by the CBN, revealed that the availability of unsecured credit provided to households rose in Q1 2019 but is expected to fall in the next quarter. Lenders reported higher appetite for risk and market share objectives as the major factors that contributed to the increase in Q1 2019.

Despite lenders’ resolve to leave the credit scoring criteria for unsecured loan applications unchanged, the proportion of approved loan applications for households decreased in Q1 2019.

Lenders expect to leave unchanged the credit scoring criteria Q2 2019, but anticipate an increase in the total loan applications to be approved in Q2 2019.

In Q1 2019 relative to Q4 2018, lenders reported an increase in the availability of secured credit to households. Higher appetite for risk and improving economic outlook were major factors behind the increase. Availability of secured credit was expected to increase in Q2 2019 as well, with improving economic outlook and market share objectives as the likely contributory factors.

The report stated that Lenders tightened credit scoring criteria in Q1 2019, and therefore the proportion of loan applications approved in the quarter decreased. Lenders expect to leave unchanged the credit scoring criteria in the next quarter, yet expect an increase in the proportion of approved households’ loan applications in Q2 2019.

“We do know that banks have always expressed some resistance to increasing credit to the private sector, given the past experiences of Non-Performing Loans (NLPs).  The MPC has directed management to think about administrative legal and regulatory framework to be put in place to ensure that some of the credit risks associated with granting loan to private sector that ultimately results in NPLs should be mitigated such that when banks decide to lend to private sector or increasingly the probability that NPL should rise should be moderated,” Emefiele said.



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