Financial institutions must unite against NPLs – CBN

The apex bank said it was unrelenting in its promotion and support of credit reporting for the greater good of the economy.

“We invite all stakeholders to unite on this front in terms of integration and synergy, so that everyone, including the vulnerable and excluded can all benefit from the credit extension advantage enhance by credit bureau and credit reporting,” the Director, Banking Supervision, CBN, Mr. Abdulhaziz Barawu, said, adding that the CBN had the responsibility of ensuring the stability of the financial system.

Credit reporting in Nigeria has its antecedents in the financial crisis of the late 1980s and early 1990s, when large volumes of non-performing credits bedevilled the banking industry.

Barawu said, “Credit and liquidity work concurrently and do have an economic meaningful reciprocal relationship; you either have the funds you need or you don’t; so, to enhance liquidity then, credit is necessary.

“However, where such cash is granted to enhance liquidity and repayment is not guaranteed or out rightly defaulted, liquidity is hampered and credit risk is high. The task before the CBN then was eliminating default risk associated with granting the credit.”

In order to arrest the situation, the CBN had in January 1998 established the Credit Risk Management System, a public credit registry operated by the apex bank that banks were to report to and check up on all credits above N1m.

Thereafter the credit bureau was established by virtue of the powers of the CBN in the then newly enacted Central Bank of Nigeria Act, Cap 7 of 2007, and it released the Guidelines for the Licensing, Operations and Regulations of Credit Bureaux in Nigeria in 2008.

Three privately owned credit bureaux, XDS Credit Bureau, CR Services Credit Bureau and CRC Credit Bureau, were subsequently licensed by the bank.

The CBN said credit reporting would not only uphold a healthy credit culture, but would also create a lower interest rate system, reduced the need for physical collateral, optimise decision-making processes, help people escape poverty, and create access to better economic life.

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