By Nume Ekeghe
Some stakeholders have stressed the need for the Central Bank of Nigeria (CBN) to enter into an international data sharing agreement with other regulators across the globe to expose bank customers who take loans and relocate to other countries without any repayment plan.
This is as findings by THISDAY revealed that some persons who had deliberately collected loans from commercial banks relocate to Europe, North America and some other continents without any repayment plan. A large number of those who perpetrate such act are bank staff who have easier to access such loans.
The development, according to industry analysts, could contribute to the rise in the industry non-performing loans (NPLs). Therefore, they stressed the need for the CBN to push for a cross-border data sharing arrangement.
Speaking on the development, a senior banking officer who pleaded to remain anonymous, said: “We have seen the trend for about two years whereby a large pool of customers and staff who want to leave the country, knowing that when they leave the country, the banks would not have any way of reporting them to bureaus internationally.
“For the bank I work in, it is in an excess of over N500 million. In my last check, over 50 staff had taken loans and have left the bank knowing they were going to leave the bank and this figure continues to grow.”
She added: “This behavior cuts across the industry and when you talk to colleagues in other banks, they would tell you they are seeing same thing.
“It would be helpful if there is an international credit bureau database where we can report, in such a way that if the person goes to Canada or Australia and wants to take a loan, and they know you have a delinquent loan in your country it would also limit their ability to access loans.”
From a risk management perspective, a risk manager of a bank suggested that new mechanisms be put in place to avert risks that could emanate from such loan default and also called for data sharing arrangement.
He said: “Banks and lending institutions can put in a clause on the forms to inquire if the customer has plan to relocate and some might be truthful because now, no one is asking that question if a customer is likely to relocate.”
Furthermore, he advocated for intelligence sharing, saying, “In Nigeria, we have credit bureaus and I believe the credit bureaus need to step up to a step higher by linking their database internationally so that if you go abroad, your bad credit reporting would still follow you especially because most of them leaving are going there to get mortgages.
“Also, within Nigeria, finance institutions also need to start sharing a lot of information. As it is now, it is not all institutions that are on the credit bureaus and you find that people take loans from various banks in small pieces and then they can join them together before they run away.
“Another suggestion is that they need to go back to the correct fundamentals of lending in the sense that they should not overlook things like guarantors when granting loans,” he added.
On her part, financial institutions analyst at Agusto & Co, Mrs. Ada Ufomadu, believes that the NPL from customer might not be high enough to damage banks’ books.
She explained: “Even if a bank experiences it and they have non-performing loans, the volume would not be large and it is not something that would drive the banks NPL from three per cent to 10 per cent.
“I know the NPL ratio of most retail loans are quite high, but it is in small bits and you might not see a big impact on the NPLs unlike the big corporates. The volumes are too small to worry about.”
Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance
Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.
“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.
“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.
“That way you won’t pay any interest.
“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.
“Then you’ll be able to move into the sort of more normal credit card range.
“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”
Consumers of all kinds may not have the best options at the moment as recent analysis from moneyfacts.co.uk revealed.
In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.
On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.
Rachel Springall, a Finance Expert at moneyfacts.co.uk commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.
“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.
“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”
Should you use a balance transfer to pay off debt?
A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.
Things to consider before using a balance transfer
The size of your debt
If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.
Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).
Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.
The time taken to pay the debt
The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.
However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.
Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.
Your credit score
The advantage of a good credit score cannot be underestimated in this situation.
When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.
Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.
If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.
Alternative solutions to balance transfers
You could still use a balance transfer even if the size of your debt is bigger than the credit limit.
Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.
Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.
Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.
Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
Turn credit declines into a win-win | 2020-11-20
The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?
The case for coaching
Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.
After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.
On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:
- Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
- Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
- Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.
Provide cost-effective, high-quality advice
AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.
AI-based solutions are even more powerful when they follow coaching best practices:
- Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
- Plain language. Deliver advice in friendly, jargon-free language.
- Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
- Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.
Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit egain.com.
EVAN SIEGEL is vice president of financial services AI at eGain.
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