By NEIL HARTNELL
Tribune Business Editor
Legalised web shops will have to obtain a Financial and Corporate Services Provider’s Licence to continue their lending activities, bringing them under the proposed Credit Bureau.
Wendy Craigg, the Central Bank’s governor, confirmed to Tribune Business that the Gaming Bill and associated Request for Proposal (RFP) for licence applications prevented web shops from conducting any other business without the relevant approvals.
“Based on the new gaming legislation, it is our understanding that the web shop operations will not be able to carry on any ancillary business under their gaming licence,” Mrs Craigg said.
“As such, to the extent that they have been conducting lending business, they will be required to obtain the appropriate licence which, in this case, would be a Financial and Corporate Service Providers (FCSP) license.
“You may also recall from the draft Credit Reporting Bill that all credit-providing FCSPs would be required to provide data to the Credit Bureau.”
This would mean that any legalised web shops, who obtain an FCSP licence, would have to supply all data concerning their loan portfolios and borrowe creditworthiness to the long-awaited Credit Bureau that the Central Bank is proposing to create.
This would be a key step in regulating any future lending activity by web shop operators, bringing it into the formal economy, but it is unclear what will happen to their existing loan portfolios.
The Securities Commission is responsible for regulating FCSPs and issuing the relevant licences. Whether it would want to regulate legalised web shops and their lending is another matter, but it would likely want pre-existing loan portfolios to come under the Credit Bureau’s watch.
With commercial banks reluctant to accept web shop deposits, many operators resorted to lending in a bid to gain a return on the huge sums of cash they were generating. These loans are understood to range from mortgages to ‘pay day’ credit, plus lending to/investments in businesses involved in ‘legitimate’ sectors of the economy.
Paul Major, a consultant to the web shop industry, previously suggested that the sector’s collective loan portfolio was already worth $100 million - a not insignificant sum in an economy this size.
Meanwhile, Mrs Craigg revealed to Tribune Business that consultation on the newly-released legislation that will facilitate the Credit Bureau’s creation - the Credit Reporting Bill 2014 and accompanying regulations - is set to close on December 19.
The Bill and regulations are scheduled to go before the Christie Cabinet for approval in the 2015 first quarter, with the legislation going through Parliament in the second quarter next year.
And, not waiting for the legislation, Mrs Craigg said the bidding process to find the Credit Bureau’s operator would likely launch next month.
The selection process is likely to take eight to 10 months, with the chosen operator then requiring another 12-18 months before the service is launched. All told, this means the first Bahamian Credit Bureau is unlikely to be operational before end-2016/early 2017 at best.
“The Credit Bureau operator selection process is likely to take eight to 10 months and, at the end, we aim to identify the provider of choice who will then be invited to apply for a licence upon enactment of the legislation,” Mrs Craigg said.
“Once licensed by the Central Bank, the service provider will commence the very engaging task of gathering, cleaning and validating the information from the subscribers - which precedes the issuance of the first credit report.”
The Central Bank governor said the Credit Bureau’s launch may also help stem the drain of bank capital towards increased loan loss provisioning, enabling the sector to redeploy its resources towards lending opportunities - a vital stimulant for Bahamian economic growth.
“This is very important for the Bahamian credit system, from both a financial stability perspective and from the point of view of individual lenders,” Mrs Craigg told Tribune Business of the proposed Credit Bureau.
“We need to ensure that the appropriate mechanisms are in place to mitigate risk in the financial sector, and to address the current asymmetries in information, which does not bode well for a healthy financial sector.
“The Credit Bureau has benefits for consumers, lenders and, by extension, the economy. When international organizations, such as the IMF, the World Bank and credit rating agencies, assess the financial stability of an economy, they look at the level of prevailing credit risk in the financial system,” the Governor added.
“The Bahamas’ elevated level of loan arrears is clearly a risk factor that must be addressed. Our main mitigant has been the banks’ high level of capital to absorb potential losses. However, the persistence of this situation means that more capital is expended to cover these losses, instead of focusing on new credit opportunities.”
Mrs Craigg reiterated that when the Credit Bureau eventually comes into being, it will enable “credit markets to function more efficiently”.
She added: “The fact that the Credit Bureau will collect information from a variety of lending sources, including banks, credit unions and mortgage companies, means that when consumers apply for credit, lenders will be able to better assess the level of their indebtedness - which is not presently the case.
“With lenders more informed on borrowers’ financial standing, they will be less likely to issue credit to borrowers who are unable to repay, and hence reduce the potential incidences of loan arrears, foreclosures and a deterioration of their own capital resources that is available for further lending.
“If you have a financial system that is weighted down by bad debt, this has a dampening effect on bank lending activities and limits economic growth opportunities.”
Mrs Craigg said it was “not the norm” to mandate that utility companies supply customer information to a Credit Bureau, yet they could benefit from its data.
She added: “The Credit Bureau, once licensed, will work with them to demonstrate how they, too, can benefit from being a contributor to the Bureau, and the value in enlarging the credit database with their information.
“For example, small consumers who have no credit history but have always paid their utilities on time could be considered a good risk by the banks for small loans.”
The Central Bank governor said the Credit Bureau operator and its users would have an “overriding duty” to “maintain absolute security over sensitive personal information”.
She added that the Bill and its regulations established “a multi-layered approach to confidentiality and protection of borrowers’ information”, with fines ranging between $10,000 to $100,000.