Banks have been urged to holistically embrace the concept of credit bureaus to drastically help minimize the risk of borrowing and reduce the high levels of non-performing loans (NPLs) in their books
According to the Chief Executive Officer of Dun & Bradstreet Credit Bureau, one of the world’s leading credit bureaus and sources of business information and insight, Mr. Miguel Llenas, when defaulters are aware of their information with the credit bureaus, they will move to clear their debts and ensure that they remain clean at all times in order to be declared credit-worthy.
He said many banks were dealing with many individuals and businesses which do not have genuine information about themselves; a situation which has created a lot of problems for the banks.
Addressing a large number of credit controllers, accountants, bankers and players in the financial services sector in Accra on the relevance of credit bureaus, he said “Once you do not have proper information on the businesses and individuals you want to offer credit to, you feel reluctant to do so and doing it without the information is also taking a huge risk”, he said.
The heavy NPL in the books of the banks, which is about 14 per cent, has been partly attributed to the high interest regime in the country presently. Mr. Llenas said should banks embrace credit bureaus such as Dun & Bradstreet, the NPLs could reduce to less than eight per cent in the coming years.
He said many banks were reluctant to offer credits to businesses because of the lack of information; a practice which hurts an economy and noted that for the trend to change, they should be able to have accurate information which can only be sourced from credit bureaus.
Credit bureaus are institutions that specialise in collecting, collating and disseminating credit information. Credit information is collected from various traditional sources such as financial institutions, government departments, businesses and customers, as well as non-traditional sources such as utility providers, and compiled into credit information reports which help creditors in assessing repayment capabilities of prospective and existing customers.
Credit bureaus aid lenders, borrowers and the economy as a whole.
The primary functions of credit bureaus are among other things; to ensure that accurate depiction of the "prospective borrowers' total credit exposure" and financial position is available to the creditor prior to making a credit decision.
It is also to protect creditors against unnecessary credit risk exposure and, therefore, against non-performing assets and defaults; prevent application fraud by authenticating application particulars; Protect consumers against financial mismanagement by basing their access to credit, and payable risk premium on their respective risk profile; and to facilitate improved efficiency and turnaround time of credit evaluation and decisions. From an economic standpoint, this translates into a healthier and more sustainable expansion of credit.
The call by Mr. Llenas comes at a time when banks in the country have become increasingly reluctant to release information on their creditors for what is believed to be fear of sharing their clients’ credit history with others. But Mr. Llenas said the reluctance of the banks to do so was rather posing a greater risk to their businesses.
“Where the banks are not sure about the business of individual, they do not release credit and that has the potency to slow down economic growth because the needed credit to expand businesses and the economy in general would be lacking”, he said.
Mr. Llenas said Dun & Bradstreet, which has already received a provisional licence to operate in the country would fully launch its operations in the latter part of the year. “We are investing up to $3 million to fully set up Dun & Bradstreet in Ghana to provide the best service ever from a credit bureau and we hope this will help transform the banking sector and the economy in general”, he said.
He urged the banks to make the sharing of information an easy task since that holds the key to protecting their operations and helping their clients to access funds to do the right businesses that would inure to the benefit of the economy.
The Associate Director of Dun & Bradstreet, Mr. Evans Sarpong, in his presentation reinforced the concept of credit bureau saying, “In spite of the different models in different periods, sound and forward-looking credit management always starts from credit data”.
He said credit bureau data had become more of a necessity during the financial crisis, boosting the use of monitoring tools.
Mr Miguel Llenas, Chief Executive Officer of Dun&Bradstreet (with mic), explaining a point to participants at the forum.