The Impact of Credit Bureau on the Non-Performing Loans Situation in the Nigerian Banking Landscape

Abstract

Lending in the Nigerian banking space has continued to evolve over the years. As changes have occurred in the banking system, so has the level of non-performing loans evolved. While the growth in non-performing loans has been as a result of various unwholesome practices in the industry, others have been as a result of global economic downturn such as the United States housing bubble in 2007 - 2008 and then the fall in demand and price of crude oil in 2016, caused another round of financial crisis. The Nigerian banking landscape has been bedeviled with lots of non-performing loan challenges over the years. The disbursement of credit facilities in the form of advances, loans, and overdrafts by banks to corporate bodies, individuals, private and public entities occupies a critical and strategic position in the economic growth of a nation. To perform this function, Banks muster funds from the nation’s surplus economic unit of the economy. This thesis focuses on how the establishment of credit bureau has impacted the growth or otherwise of non-performing loans, lending practices and policies of banks in Nigeria. Collected and analyzed data through primary and secondary sources. Questionnaires were administered to bank officials and the three major credit bureau companies. However, as is the case with questionnaires distributed, some were returned unanswered due to people being reluctant to furnish detailed replies. This study sets out the theoretical background, rationalization and objectives of the study. A lot of literature reviews on lending policies and reviews of credit control in the banking industry were undertaken, the need for efficient loan administration and the causes of non-performing loans in the banking industry. A summary of the findings, recommended solution and conclusion to the research problems is presented. The outcome revealed that deficient credit analysis, as well as any negative economic impact on the country, has always played a major role in the growth of non-performing loans. This study examined the reasons for non-performing loans in the Nigerian banking industry and the impact the credit bureau has played. The ex-post facto research design was adopted during the course of the study. Data from the Central Bank of Nigeria Statistical Bulletin and Financial Statement of banks for the period 1994-2019 were collated for the time series analysis. The five hypotheses stated were tested using the Ordinary least square regression. Non-performing loans measured by the natural logarithm of aggregate non-performing loans of banks represented the dependent variable, while gross domestic product, inflation rate, total loans and advances, total assets and bank’s lending rate were adopted as the independent variables for the five hypotheses of the study. Macroeconomic variables such as exchange rate, and interest rate were also included as control variables. The result derived from this study showed that GDP had a negative effect on non-performing loans; Bank lending rate, Inflation rate and total loans and advances all had a positive effect on non-performing loans but was insignificant; total Assets exerted a negative effect on non-performing loans and was statistically significant at the 0.05 level.