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Copyright © 2013 CRC Credit Bureau Limited. All Rights Reserved.
Nigerian Financial Market Infrastructure and Managing Credit
Risks
June
4 , 2013.
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Ahmed ‘Tunde Popoola, FCAManaging Director / CEO, CRC Credit Bureau Limited
Presented at the 4th Nigeria Development and Finance Forum (NDFF) 2013, North America Conference at Washington Marriott, Washington DC, United States.
Presentation Outline
Introduction Update on the Nigerian Financial
System & Recent Policy Drivers Nigerian Financial Market
Infrastructure Managing Credit Risks CRC’s Role as a Financial
Infrastructure Conclusion
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Nigerian Financial System
Consolidation of the Banking System between 2003-2005.
The Nigerian Financial Crisis Vs Global Financial Crisis.Global Crisis influenced by subprime
mortgages.Nigeria Financial crisis influenced by
Capital Market burbleForeign Investment funds flight and repatriation.
Weak governance regime.Nigeria is emerging strong from the crisis.
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Capital Market Capitalisation
Source: Nigerian Stock Exchange
Jan., 2006 Jan., 2007 Nov., 2007 Mar., 2008 Feb., 2009 Dec., 2010 Dec., 2011 Dec., 2012 Apr., 2013 May., 2013
Market Capitalisation (=N=‘Trillion)
2.6 4.4 10.31 12.6 5.1 7.92 6.54 8.97 10.56 11.94
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Nigerian Financial System Cont’d.
Central Bank of Nigeria
Deposit Money Banks:
Licensed Micro-finance
BanksPrimary
Mortgage Institutions
(PMIs)Commercial
BanksNon-interest
Banks
Discount HousesFinance
CompaniesMerchant
BanksDevelopment
finance institutions
(DFIs)Asset
Management companies
Leasing companies
Bureaux-de-change (BDCs)
Mobile Network
Operators
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Low Level of Financial Inclusion
Parameters Countries
Brazil Russia India China South Africa
Nigeria
Total Population (Millions)
196.7 143 1,241
1,344 50.59
162.5
Total Value of Bank deposits including gold ($’Million)
352.01
497.4 298.7
3,254.7
48.75 36.3
% of Bank account holders
62 N/A N/A N/A 63 32.5
ATM Coverage per 100,000 adults as at 2011
119.63
152.94
8.90 N/A 60.01 11.99
Source: World Bank 2011
Data as at 2011
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Low Credit Penetration
Parameters Countries
Brazil Russia
India
China
South Africa
Nigeria
Domestic credit provided by banking sector as % of GDP as at 2012
98.3 39.5 74.1 145.5 175 37.5
Private Credit Bureau Coverage to % of adults as at 2012
62.2 45.4 14.9 54.0 4.1
Source: World Bank 2012
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Trend in Credit Penetration in Nigeria
Source: CBN, 2012.
2006 2007 2008 2009 2010 2011 2012
Credit to Private Sector (=N=' Trillion) 2.57 5.07 8.06 10.21 9.83 14.18 15.14
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Presentation Outline
Introduction Update on the Nigerian Financial
System & Recent Policy Drivers Nigerian Financial Market
Infrastructure Managing Credit Risks CRC’s Role as a Financial
Infrastructure Conclusion
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The Concept of Financial Infrastructure
Deposits(Surplus Zone)
Loans(Deficit Zone)
Infrastructures used are:
Automated Teller Machines (ATM)Point-of-Sale TerminalsMobile and Internet Transfers Cashless policy
Infrastructures used are:
Credit BureausCollateral RegistriesLegislation and Court System
Financial Intermediation
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Financial Infrastructures Cont’d.
Financial Infrastructures help:Modernise financial
intermediation.Drive financial inclusion.Drive innovation.Foster transparency.Curb corruption.Enhance efficiency in service
delivery.Reduces transaction costs.
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Payment Structure in Nigeria
Users
Payment Services Providers
Payment Infrastructur
e
Regulator
ChannelsATMPOSTellerMobile
Internet
InstrumentsCash
ChequesCardsACHRTGS
Providers & Processors
Deposit BanksCard Operators
NIBSSCSCS
Source: EFInA, 2011ACH: Automated Clearing HouseRTGS: Real-Time Gross Settlement System CSCS: Central Securities Clearing SystemNIBSS: Nigerian Inter-bank Settlement System
Individuals, Business, Government
Channels & ProductTransaction Processing
Payment methods
CBN
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Cashless Infrastructure
2006 2007 2008 2009 2010 20110
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ATM Coverage per 100,000 adults
Source: World Bank, 2011
ATMs accounts for over 80% in e-payment transactions. However, cash withdrawal and bank enquiries are the most common transactions performed.
The level of inter-operability among payment providers and users have increased. With the scrap of the N100 interbank charges, the use of ATM machines have become acceptable by many.
According to CBN, the number of deployed and active PoS terminals grew from 5,557 as at January, 2012 to over 104,858 by October, 2012 with over 176, 604 being registered.
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Other Policy Drivers
Mobile Banking and Money TransferCashless PolicyRevised Microfinance PolicyRevised Prudential Guidelines
Presentation Outline
Introduction Update on the Nigerian Financial
System & Recent Policy Drivers Nigerian Financial Market
Infrastructure Managing Credit Risks CRC’s Role as a Financial
Infrastructure Conclusion
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Understanding Credit Risk
Understanding Credit Risk using a simple credit cycle.
Credit risk arises due to moral hazards and adverse selection.
For banks in general, loans are the largest and most obvious source of credit risk;. However, there can be other sources of credit risk through the activities of a bank. Banks increasingly face risk in various financial instruments such as interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, extension of commitments and guarantees, and the settlement of transactions.
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Laying the Foundation for Risk Management
Collaboration among key risk management players.
Establishment of an appropriate credit risk environment and culture.
Operating under a sound credit-granting process.
Maintenance of an appropriate credit administration, measurement and monitoring process.
Ensuring adequate controls over credit risk and adopting a sound internal lending policy.
Use of credit bureaus.Use of collateral registries.Compliance to Basel’s Accord.
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Financial Infrastructure: Presence of Credit Bureaus in Africa
The countries in are those that uses private credit bureaus in Africa.
Ghana is the only country in West Africa with a Collateral Registry.
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Credit Bureaus in Nigeria
Credit bureaus, also known as credit information services, credit registries, credit reporting agencies or consumer credit reference agencies are organizations that are well established in advanced economies. The bureau compiles information on individuals and corporate organization. These include information on credit repayment records, court judgment and bankruptcies and then creates a comprehensive reports that is sold to business users in form of credit reports, credit scores and other products.
Presently, Nigeria has three private credit bureaus and one owned by the Central Bank of Nigeria. Having credit bureaus places Nigeria in a enviable position as they have enabled the country reach a respectable level in database coverage, improved loan processing speed and costs, reduced selection records and information asymmetry, reduced credit risk and overall enhanced access to credit.
Function of Credit Bureaus
Credit Bureau provides complete, accurate, and reliable information on credit status and history thus improving the ability of credit providers to make informed lending decisions.
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Aggregated credit
Information
Other financial
institutions
Insurance
Banks
Telecoms and
Utilities
Other non- financial institutions
Credit Reference Reports & Scores
Business Users:BanksNon bank financial InstitutionsInsurance CompaniesTelecomsUtilitiesRental AgenciesManufacturersRetailersEmployersGovernment Agencies/RegulatorsOil and Gas CompaniesPharmaceutical CompaniesRecruitment/Consultancy Firms
Public Data Sources
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Challenges & Prospects
ProspectsA large market size.An improved financial
infrastructure.Improved and well sustained
reforms in the financial system.High investment opportunities
and service options.Reduced risk of cash-related
crimes.Cheaper access to banking
services and access to credit.Improved and greater financial
inclusion and economic development.
Seamless multichannel integration.
Challenges Lack of appropriate legislation. Irregularities in the operations
of some of the financial infrastructures such as ATM machines and the POS terminals.
Epileptic internet and telecommunication services.
Incessant network failures. Limited financial literacy. Capacity/size of the market
(long queues at some ATM machines especially weekends) and limited coverage.
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The Future
Quick implementation of the national identity project.Establishment a collateral registry.Support existing Credit Bureaus to enable them deliver on their mandate e.g. regulations. The efficiency and transparency of the judicial system.
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Investment Finance Opportunities
Top 10 African Destination countries for infrastructure projects, up to February, 2013
Countries Number of Projects Sum of capital invested (US$ million)
South Africa 134 129, 934.0
Nigeria 106 95,480.5
Egypt 82 60,164.7
Uganda 63 17,730.3
Kenya 60 32,851.5
Algeria 34 87,154.1
Mozambique 31 32,085.0
Libya 29 20,668.4
Tanzania 29 16,185.1
Cameroon 25 8,470.8
Source: African Project Access, Business Monitor International; Ernst and Young analysis
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Investment Finance Opportunities in Nigeria
Project Opportunities in Nigeria are:Transport and Logistics
infrastructure.Housing Infrastructure.Oil and Gas.Power and Utilities.Agriculture.
Presentation Outline
Introduction Update on the Nigerian Financial
System & Recent Policy Drivers Nigerian Financial Market
Infrastructure Managing Credit Risks CRC’s Role as a Financial
Infrastructure Conclusion
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Who We Are CRC Credit Bureau is a private limited company
incorporated in June 2006. The Bureau was licensed by the Central Bank of Nigeria in June 2009 and commenced live operations in the same month.
CRC Credit Bureau provides an industry-wide information repository on credit profiles of both consumers and corporate entities. We are the leading credit bureau company in Nigeria with credit information covering commercial banks, non-banking institutions, retailers and utility providers and other credit granting institutions.
Our main objective is to generate and supply reliable and accurate credit information reports on borrowers in the consumer and corporate sectors for permissible purposes.
We serve as a neutral third party service provider to our customers and subscribers.
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Retailers
Oil & Gas
Commercial Banks
Primary Mortgage Banks
Non-Interest earning Institution
Travels ,Tours & Hospitality Company
Federal Government Parastatal
Accounting/Audit Firms
Insurance Companies
Other Financial Institutions
Microfinance Banks
Discount Houses
Leasing Companies
CRC Membership Chart
Recruitment/Consultancy
Other Non-Financial Institutions
Pharmaceuticals
Co-operatives Conglomerates
Products & Services
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Presently Short / Medium TermCRC Credit Information Reports•CRC Basic Credit Information Report•CRC Classic Credit Information ReportFor both: Consumers(Individuals),Small Businesses and Corporate
Fraud Detection•File Cross-referencing•Fraud scoring•Fraud Detection systems
Self Enquiry Collections Management
Bulk Portfolio Requests Credit Scoring
Credit Risk Report & Review (Referencing)
Batch Screening
Data Management
Monitors & Alerts
CRC Financial Education
Presentation Outline
Introduction Update on the Nigerian Financial
System & Recent Policy Drivers Nigerian Financial Market
Infrastructure Managing Credit Risks CRC’s Role as a Financial
Infrastructure Conclusion
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CONCLUSION Nigeria financial system is set for the next decade with the
aggressive adoption of financial infrastructure for financial intermediation – payments system and access to credit
All efforts are also geared towards improving on the financial inclusion including the introduction of mobile money
Credit bureau is set to change the face of access to lending in Nigeria especially for consumers and SMEs who face the challenges of access to credit
Nigerian banks are taking leadership in Africa with presence in most attractive economies in Africa and with improvements in size and governance
Nigeria is also a hot destination for FDIs due to environmental friendliness, market size and stable polity
We need to address the challenge of power, internet access, unique identification, legislation, etc.