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Bureau A 'Great Start' To Better Credit Risks

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Clearing Banks Association’s (CBA) head yesterday told Tribune Business that the proposed Credit Bureau was “a great start” to establishing a proper credit risk management system in the Bahamas, noting that this nation’s non-performing loan (NPL) levels were among the Caribbean’s highest.

Sean Albert, speaking after the Central Bank of the Bahamas released two Bills that will facilitate the Credit Bureau’s creation for consultation, said global experience had shown such mechanisms “enhance access to credit”.

He added that its establishment in the Bahamas would also provide commercial banks with “stronger risk analysis” and better risk management, as they would be able to access more comprehensive information on a borrower’s previous credit history.

“It’s a great start,” Mr Albert told Tribune Business of the proposed Credit Bureau. “With the Bahamas being one of the highest non-performing loan countries in the region, anything that helps institutions analyse and manage risks is welcome.”

Bahamian commercial banks had $1.028 billion in non-performing loans on their books at end-July 2014, with more than $1 out of every $5 lent by the sector in arrears.

The CBA, in a statement issued by Mr Albert, who is also Scotiabank (Bahamas) managing director, said the Credit Bureau had “been long anticipated, and our member banks will fully cooperate with the regulators to facilitate its creation and commencement.

“There are many benefits to be gained through the establishment of a local Credit Bureau, both for the market and our institutions,” the CBA added. “With the inherent reduction of lending risk through increased transparency should come improved access to credit and increasingly more competitive interest rates and lending terms to qualified customers.

“Given the challenges faced by the industry with NPLs, we also welcome the ability to provide more responsible lending services and reduction in credit losses that will follow.

“Additionally, we will all stand to benefit from the enhanced economic reporting and forecasting that will be available to the Central Bank of the Bahamas.”

This echoes the Central Bank view, which is that commercial banks issue “more risky loans” because they do not have full information on borrower creditworthiness.

It said the Credit Bureau’s creation would help to eliminate a situation where Bahamian commercial banks were exposed to unnecessary lending risks because they were unable to access all relevant information on potential borrowers.

This, the regulator indicated in the consultation document, had potentially resulted in Bahamian/resident borrowers with good standing being exposed to higher interest rates in the absence of a Credit Bureau.

“In the current lending environment, lenders are making credit decisions on less than full information on borrowers’ indebtedness, which leads to more risky loans being extended,” the Central Bank warned.

“A credit reporting system would provide banks, non-bank financial institutions and other lenders with additional tools to evaluate the creditworthiness of their customers and to better equip the Central Bank to carry out macro-prudential monitoring of the economy.”

The CBA, meanwhile, also moved to assuage any concerns Bahamians might have about the Credit Bureau provider, and their personal and financial data, being held offshore in a foreign company.

Promising the “highest level of confidentiality”, the CBA statement said: “We note the recommendation of the World Bank’s IFC to engage an existing foreign provider to operate the Credit Bureau, given the size of the market and requirements for sustainability.

“We recognise that an offshore model may present privacy concerns for our customers and we will work closely with the regulators and selected agency to ensure the highest level of confidentiality is maintained.”

The regulator said experience in other jurisdictions showed that Credit Bureaus needed a minimum of 250,000 inquiries annually to be sustainable, a relatively high number for the Bahamas with its estimated 350,000-strong population.

“Based on the operating experience of existing Credit bureaus, a sustainable operation needs in excess of 250,000 credit inquiries per annum,” the Central Bank said.

“Otherwise, the cost of capital is too high, and the subsequent cost of individual credit reports prohibitively expensive.”

As a result, the World Bank’s International Finance Corporation (IFC) had recommended that the Bahamas employ an ‘offshore model’ for its Credit Bureau “where an existing service provider would leverage its existing systems outside the Bahamas to serve the Bahamian market”.

The CBA said it knew that the Credit Reporting Bill 2014 and Credit Reporting Regulations 2014 will call for additional reporting requirements.

The Credit Bureau provider will be selected via a Request for Proposal, with the Central Bank responsible for both its licensing and regulation.

Banks, insurance companies, financial and corporate services providers, credit unions, the Bahamas Mortgage Corporation and other mortgage lenders will be required by law to provide information on their borrowers to the Credit Bureau, the Central Bank said.

It did not mention whether web shops, which have built up a mortgage/loan portfolio said by some sources to be worth $100 million, would have to report to the Credit Bureau.

But the Central Bank is keeping its options open elsewhere, saying it “may require” other credit providers and utilities, such as the Bahamas Telecommunications Company (BTC), Cable Bahamas, the Bahamas Electricity Corporation (BEC), the Water & Sewerage Corporation, plus retailers who sell on hire purchase; the National Insurance Board (NIB) and the Companies Registry to supply client details.

The Bills “afford consumers rights” when it comes to data protection and privacy, while a National Credit Reporting Review Commission will be created to hear consumer appeals and review the Credit Bureau’s actions.

Among the information provided by a lender to the Credit Bureau is the nature and amount of the loans granted to a borrower; the security taken for them; nature of any guarantees; and any information on the borrower’s income, creditworthiness and financial transaction history.

It is unclear, though, from the explanatory notes, how far back the Credit Bureau will go, in terms of borrowers’ histories, when it comes to obtaining initial set-up information.

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