Banks are agents of financial intermediation. Through financial intermediation, bank collects money from the area of surplus (customers) as deposits, holds the money (fund) and transfers it to areas of deficit through loan while avoiding insolvency. From the above, it is obvious that banks perform two major functions which are acceptance of deposits and loan administration.
Since the advent of banks recapitalization in 2005, Nigerian banks have gone mega, as such, Nigerian banks are financially buoyant and are willing and are well positioned to avail loans to their customers (individuals and corporate organizations). However, granting of loans by banks requires that customers meet and exhibit certain conditions and characteristics without which their loan requests will not be granted.
Bad Credit History
One of such conditions or characteristics reflects on the character of the customers. Character is an important aspect of credit. It is tantamount to customers’ credit worthiness. A customer that has bad credit history by defaulting in loan repayments will not have his loan approved. Customer’s credit worthiness is carried out by credit bureaus like CRC Credit Bureau. Once a customer makes a loan application, the bank gets in touch with a Credit Bureau and the bureau checks the customer’s credit history with all the banks in Nigeria. If the customer has defaulted in any way in the past, the bureau will notify the bank. Receipt of unfavorable report from Credit Bureau means that such customer’s loan will not be approved so any customer that wants to obtain loan from any bank in Nigeria should make sure he has no record of loan default.
Low Collateral Value
Secondly, banks deny customers loan on the grounds of collateral. Collateral is a secondary source through which a loan can be repaid in case the primary repayment source can not repay the loan. Based on international banking standard, collateral has two values which are Open Market Value and Forced Sale Value. The Forced Sale Value is the auction value or amount of collateral and the bank operates based on that. Normal credit rule requires that the collateral’s Forced Sale Value be 150% of the loan amount. The meaning of this is that if a customer requests for a loan of NGN1m, the Forced Sale Value of the collateral pledged should not be less than NGN 1.5m. A customer may pledge collateral with an Open Market Value of NGN2.5m for a loan of NGN1m without knowing that the asset’s Forced Sale Value is NGN1.2m. In such case, the loan will never be granted. Any corporate customer that wants to apply for a bank loan should value its collateral and ensure that its Forced Sale Value complies with credit requirements.
Low Salary Value
In the case of an individual customer, a loan is denied if the monthly repayment amount is greater than 33.33% of the customer’s monthly salary. In view of the above, a prospective loan applicant should contact his bank to work out his repayment schedule in a bid to ensure that his monthly repayment is less than or equal to 33.33% of his salary before applying for any loan.
Loans are denied if a customer does not sign across a postal stamp while executing the offer letter. As such, it is advisable that a customer affixes a NGN50 stamp and sign across the stamp while accepting the loan’s offer vide its offer letter.
Incomplete documentation leads to loan denial by Nigerian banks. As an applicant, make sure you provide the entire document stipulated in the offer letter. Also, note that the required documentation varies from one type of loan to another. It is better to consult your bank and have a look at the checklist in respect of your loan so as not to be caught unawares when the loan processing commences.
Viability of repayment sources
The viability of repayment sources goes a long way in determining whether a loan will be approved or not. For personal loan, applicants with no viable means of repayment like monthly salary, company income and so on will have their loan requests turned down. As a loan applicant, make sure you have a viable repayment source before making a loan request.