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Credit Bureau Benefits Will Take 'A Few Years'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Central Bank's governor yesterday said the benefits from creating a credit bureau will take "a few years to materialise" given the data gathering that will be required.

John Rolle, in e-mailed replies to Tribune Business questions following Wednesday's tabling of the Credit Reporting Bill in Parliament, said bidders for the contract to operate the Bahamas' first credit bureau will also have to adjust their offers to the legislation. He added that the tender process had been "very advanced", with bids received by several firms, but these proposals must now be "refreshed" to ensure compliance with the legislation's requirements.

"Up to this point the RFP process for the selection of an operator had been very advanced, with proposals submitted by several firms," the Central Bank governor confirmed.

"This process will have to be refreshed, so that the firms can update their proposals. Once the operator has been selected they will be responsible for setting up the bureau."

While the facility's creation will modernise the Bahamian credit market, dragging it into the 21st century and enabling borrowers and lenders to make better, more informed choices, Mr Rolle tempered expectations by explaining that the advantages will not be experienced overnight.

"The credit bureau will be forward looking with the data that it collects," he explained. "The benefits will therefore materialise a few years beyond the establishment point.

"At a minimum, the data will reasonably document the current level of indebtedness of borrowers. In the meantime, there will be a renewed public education and awareness campaign leading up to the establishment of the bureau."

Mr Rolle said the potential benefits included borrowers with good repayment histories finding it easier to obtain credit (loans) at lower interest rates than those available now, as lenders will have access to all historical information on them.

"The legislation is important because it frames a key reform that would allow lenders to make sounder decisions over the creditworthiness of borrowers," he told Tribune Business.

"This signals an eventual strengthening of the credit market market infrastructure around more discriminatory pricing and flow of credit in favour of persons and enterprises that are more deserving of such financing, and at interest rates that can be justifiably be lower than the average in some cases."

The Central Bank's efforts to upgrade the Bahamian credit market, and get the necessary legislation to Parliament, began under Mr Rolle's predecessor as governor, Wendy Craigg, and lasted several years.

As stated by the Credit Reporting legislation's Objects & Reasons: "The purpose of the Bill is to introduce for the first time a legal system of credit reporting within the financial system in the Bahamas to enable credit information sharing and reporting, and thereby facilitate objective credit decisions by financial institutions and other credit providers."

The Bill designates commercial banks, insurance companies, financial and corporate services providers, credit unions, and the Bahamas Mortgage Corporation and Bahamas Development Bank (BDB) as lending institutions that must provide borrower data to the credit bureau.

It also gives the Central Bank the power to designate utilities such as Cable Bahamas; Bahamas Power & Light (BPL); the Water & Sewerage Corporation; and companies that offer hire purchase or sales on credit as entities that have to provide information on borrowers to the credit bureau.

Many observers believe that businesses such as pay day lenders, the likes of Furniture Plus and other furniture stores, and even web shops will have to be included in the credit bureau data to ensure there is a complete borrower history available.

Lending institutions will be able to obtain credit reports detailing borrower histories, thereby enabling them to assess their existing debt ratios, payment histories and determine whether there creditworthiness is sufficient to unlock the loan being sought.

The Credit Reporting Bill specifies the information that can be included in a credit report, and also sets out data and consumer protection measures. Consumers also have the right to obtain an annual copy of their credit report from the credit bureau, and know what information is being supplied to it by lenders.

If credit bureau functions as intended, Bahamians will no longer be able to bounce from lender to lender, obtaining credit from each one by not fully disclosing their existing loans and, ultimately, overburdening themselves with debt they cannot afford to repay.

Consumers will thus learn to better manage their debts, and stay within their borrowing limits, thus benefiting their families and wider Bahamian society, and freeing up money for potential savings and investments.

Lenders, meanwhile, will be better able to assess borrower creditworthiness and make improved lending decisions. Apart from better credit allocation, the hope is to avoid a repeat of the non-performing loan pile that peaked at $1.2 billion or 15 per cent of outstanding bank credit, which has continually dragged down the housing market and wider economy for almost 10 years.

K P Turnquest, the Deputy Prime Minister, told Tribune Business of then Bill: "It is incredibly important because this is about facilitating economic growth.

"To do that, we need to have access to quality credit, both from a decision-making point of view and a facilitation point of view."

He added: "The whole idea is we will put some functions and requirements around the granting and management of credit. As you know, we have a significant consumer credit problem in this country and that is driving a lot of the defaults we see in the mortgage portfolio.

"To the extent we finally avoid that circumstance, where there's prior sharing of credit data across not only financial institutions but informal credit-granting companies and dealers, this will hopefully result in better credit decisions and better credit management by consumers. Some of these pay day credit places are taking advantage of workers."

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