The Nigerian Credit Challenge
In 2010, I took two 2-year term loans from both Diamond Bank and FCMB. Those were the days of easy credit.
In early 2012, I changed employers, and I was also forced to change my salary account from FCMB to GT Bank. As a good Nigerian, I went to Diamond bank and withdrew all my FCMB post-dated cheques that were with them and replaced with GT Bank cheques. I paid down both loans in June 2012. In July, the following month, I went back to Diamond Bank to request for another loan and I hit a brick wall. They said, "Oga, you need to move your salary account to Diamond Bank before you can access any loan". I was shocked. I just finished paying down a loan and I even withdrew my old cheques and replaced with new ones after relocating from Lagos to Abuja. I mean, I could have disappeared into thin air if I was not interested in paying back. I explained all this to then but it all fell on deaf ears.
I said, okay, let me try my luck with other banks. FCMB. Access Bank. Ecobank. Even Unity Bank. Yes, we want to give you a loan, but you have to move your salary account to us first. We are not interested in your post-dated cheques; we have had too many issues with them in the past. I went to my employer to ask if I could move my salary account from GT Bank and they said "No". No problem. I went to GT Bank, since what the banks need was just my salary account and this all important salary account was with GT Bank anyway. Then GT Bank told me, "Yes, we will give you a loan, but we need to profile your employer and get your employer to sign off on you first". Till today, I have not heard from GT Bank again.
All of a sudden I am no longer credit worthy. I had two loans running and I paid back the interest and principal back judiciously, but I am not credit worthy. Such is the life of the average Nigerian.
But I don't give up. I saved up some money and then bought Treasury Bills through Diamond Bank. I approached Diamond Bank once again and told them I wanted a loan, but this time I am not going to back it with my salary account, but with the safest security in Nigeria - Treasury Bills backed by the full faith of the Federal Government of Nigeria. In fact the loan will be collateralized to the tune of 125%, which means that I am dropping N1.25 collateral for every N1.00 loan! The story changed. Yes, we will give you a loan but your interest rate is 19% inclusive of all charges. My excitement was deflated. These Treasuries are running at just 10.5%. I mean this bank should be able to give me a concessionary rate of 14% - 15%.
I turned down the offer and went shopping again. All the banks said "Yes, we will give you a loan". GT Bank - 20%. Access Bank - 21%. Ecobank - 19%. Uh oh what's going on here? The best rate I can get for my fixed deposit is 8% but here are all these banks quoting 20% for an over-collateralized loan. Something is off. Are these banks trying to rip me off? I went to CBN website and I saw the prime lending rate at 16.44%. Add management fee and commitment fee and you get 18.44%. So, I guess I got a good deal from Diamond Bank after all.
This does not make sense. Why are the lending rates so high? How can one run a business in Nigeria at 20% - 28% rates? I mean inflation is just 8.2% but lending rates have refused to drop. Who are those people who have borrowed money up to the tune of N17 trillion? How are they paying back? I banged my head against the wall and came up with two reasons.
Nigerian banks have form a cartel. There is some kind of oligopoly going on here. Unfortunately, the CBN Governor is a banker first before a Nigerian. So he is likely to feel the pain of bankers more than the pains of average Nigerians. There is little motivation for him to reduce lending rates.
Nigerians don't pay back. Yes, I know that is a generalization. But the truth is a lot of Nigerians just don't pay back when they owe you. I have been owed by a couple of friends, and many of them have refused to pay back. I see them buying new cars and buying new suits, going on holidays and all but nah, they ain't paying back. I have been in a situation where I owed a friend some bucks for a few years but I was in a dire condition and he knew what I passed through. I paid him back first before I went for my first vacation outside the country.
My theory is that banks have serious challenges coping with Nigerians who don't like paying back loans because of the loose identities that many people have. This has forced them to be very careful and this has also made them to charge high interest rates despite reducing savings rates. I don't blame them alone. We are all to blame.
So next time, you abuse the banks for charging high interest rates, ask yourself first. Have you paid back that buddy you are owing? If you haven't, then shut up!