The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The deputy prime minister has voiced optimism that The Bahamas’ first-ever credit bureau will create “truth in lending” and help to open a “sluggish” credit market that has dampened economic growth.

K Peter Turnquest, speaking at the bureau’s launch, described it as an “essential component” of The Bahamas’ financial infrastructure that will lead to “a better credit culture” by boosting transparency and responsibility around credit decisions for both borrower and lender.

He added that its arrival will “deserving borrowers” will gain better access to credit at lower costs (interest rates), while loan delinquents and deadbeats will be protected from themselves - as well as lenders safeguarded - because their poor repayment histories will be flagged up before any monies are extended.

Explaining that the credit bureau will enable Bahamas-based commercial banks and other lenders to better assess each individual borrower’s risk on a case-by-case basis, Mr Turnquest said its evolution would bring this nation into line with international standards and best practices while also improving credit market efficiency.

“The credit bureau is the essential component for our financial system that is expected to add greater transparency to the process of providing credit to both businesses and households,” the deputy prime minister told the launch.

“It will help to inform judgments about the volume and cost of credit which borrowers should be entitled to and, as a result, stimulate the expansion or granting of credit, thus empowering consumers and business entities alike.

“More importantly, this is another important step in securing our financial standing as individuals and as a nation with respect to identifying and reducing our exposure to unsustainable credit risk and unbearable financial debt,” he added, “as it gives both consumers of debt and providers of loans, the tools to be more responsible and to consider individual circumstances in granting credit.

“It will encourage truth in lending and other consumer protection mechanisms aimed at protecting the most vulnerable in our society who may lack the financial literacy tools to make wise choices and, as a result, lock themselves into a never-ending cycle of debt, borrowing and financial hardship.”

The creation of a Bahamian credit bureau has been a decade in the making, with the initiative first unveiled by the Central Bank in 2010. It has long been viewed as a vital ‘missing link’ in The Bahamas’ credit architecture, with its absence depriving lenders of a centralised information repository they can draw on to better understand a borrower’s credit profile and risk of non-repayment.

Italian-headquartered CRIF SpA, which has a presence in providing such services in 30 countries across the Caribbean, Europe, North America, Africa and Asia, was eventually selected as the preferred bidder to operate the credit bureau in late 2018 and finally completed the Central Bank’s licensing process late last year.

The CRIF-operated credit bureau will now have to gather information from lending institutions mandated to supply it with all details on existing borrowers, particularly their credit profiles and histories, by the Credit Reporting Act.

Among those required to supply information will be the commercial banks, insurance companies, credit unions, financial and corporate services providers, Bahamas Mortgage Corporation and Bahamas Development Bank. Others likely to be added in the future are the utilities, auto dealers and furniture stores that extend credit to customers, and even the government’s revenue agencies.

The credit bureau will then compile and organise this information in a credit report provided to lenders, which will help them assess the risk provided by each loan applicant and reject those with poor histories. Its launch means that delinquent Bahamian borrowers are rapidly running out of time to get their affairs in order, and will no longer be able to bounce from bank to bank and obtain multiple loans through not disclosing their past.

“One of the objectives of the credit bureau is to ensure that more funding flows to those most deserving borrowers in our economy,” Mr Turnquest said at the launch, “while providing more informed justification for financial institutions to limit exposures to riskier prospects.

“This speaks to greater efficiency in the functioning of our credit markets, and improved financial inclusion prospects for many more persons and businesses as the access and cost of credit should reflect the degree of assessed risk.”

He added: “This development will help protect the interest of borrowers as well, as it will eliminate a lot of the subjective decisions around credit approvals and pricing of financial products borrowers should be entitled to as a result of their credit scores.

“It will help reduce the present high non-performing loans on the books nationally, thus strengthening the overall financial system for both financial institutions as well as retail stores who offer financing options.

“More complete disclosures around the level of debt that households and business are carrying, as well transparency around track records in honouring past obligations, is also expected to encourage a measure of increased accountability and prudence in how financial affairs are conducted. This is a good outcome, especially in an environment where, on average, families need to build up higher financial net worth.”

Mr Turnquest also expressed hope that the credit bureau’s arrival will free-up a Bahamian lending market that has been clogged for more than a decade following the 2008-2009 recession, with banks becoming increasingly risk averse to lending as “bad” loans peaked at $1.2bn.

“In recent years, the credit environment in The Bahamas has been sluggish at best in terms of growth coupled with elevated non-performing loans,” he said. “In order that lending can resume at a less tentative pace, the information upon which lenders rely to provide credit has to improve and a reliable database reflecting relative risk of potential borrowers is an essential tool in a risk averse society.”

The deputy prime minister called upon CRIF and the Central Bank to work closely in educating Bahamians on the credit bureau’s role and how it will operate, adding that they needed to “dispel any misconception that a credit bureau is aimed solely at protecting the interests of the lenders or even the government”.

Pointing out that the absence of a credit bureau has frequently been cited as one reason for The Bahamas’ decline in the World Bank’s “ease of doing business” rankings, Mr Turnquest said its creation was of “systemic importance to the Bahamian economy”. He added that sensitive consumer data handled by the credit bureau would be protected by the Data Protection Act.

“The establishment of a credit bureau will be an important and integral step toward an improved credit culture in The Bahamas. In order to function in a stable and sound system, it is important that financial institutions have reliable information on which to base their lending decisions, and to safeguard the interests of depositors,” Mr Turnquest said.

“I want to encourage consumers likewise to embrace this development as it will ultimately lead to personal benefit in more access to, and cheaper, financing, reliable and transparent granting of credit, and overall improvements in personal and national financial health.”