BSP, BAP to Congress: Pass CIB bill ASAP

The Bankers Association of the Philippines (BAP) is urging Congress to pass, at the soonest possible time, a bill that would introduce the country’s first ever credit information bureau (CIB).

In fact, it is deemed critical for the development of the country’s financial system and economy that even the Asian Development Bank (ADB) and the International Finance Corp. (IFC) has indicated willingness to pour in equity to the proposed bureau.

As early as October last year, the ADB expressed willingness to make an equity investment of up to $1 million to establish a comprehensive and credible credit information system in the Philippines.

In its presentation, the ADB said that the establishment of CIB "assists in the development of a sound credit risk management practice among the lenders and borrowers, consequently contributing to a more stable and efficient financial system in the country. The lenders’ improved access to accurate and reliable credit information will enable them to make more informed credit decisions while strengthening credit discipline of the borrowers. The availability of consolidated credit information also reduces processing time and costs to the lenders, which is expected to, in turn reduce financing cost of the borrower."

Likewise, the Chamber of Thrift Banks (CTB), the Rural Bankers Association of the Philippines (RBAP), the IFC and the BAP all expressed willingness to invest in the propsoed bureau. "We hope that the legislators can frealize the importance of the proposed bureau not only for the country’s financial system, but also the economy," was the joint appeal of the prospective investors to the CIB.

Even the country’s insurance industry has given their nod of approval for the proposed CIB as insurers are also mandated by law to extend loans, albeit in a limited scale compared to banks.

Nestor Espenilla, Deputy Governor of the Bangko Sentral ng Pilipinas (BSP) explained that the ensure equitable handling of the information, the BSP will be allowed to investment, in the interim, up to 49 percent in the bureau.

The balance of 51 percent will be offered to entities as the IFC, the ADB, and the trade groups such as the BAP, CTB, the RBAP, the Philippine Life Insurance Association (PLIA), and the Financial Executives Association of the Philippines (Finex).

Espenilla said that the CIB will address the current problem of the lack of centralized information, regarding the credit history and track record of individual and corporate bowrrowers.

"The CIB will improve the overall availability of credit, especially to small borrowers and reduce excessive dependence on collateral to secure credit lines as well. The lenders will be assured of the good credit standing of the borrowers, reducing the risk of default and shorten administrative costs, thus bringing down intermediation cost," Espenilla explained.

The BAP further defended the passage of the CIB bill since it will spur lending to the retail market, and improve the growth and coordination of the different financial sectors.

"Delays are equivalent to opportunity losses, and the security of the Philippine economy is consumer spending which could be improved several times with better information," the BAP said. "For it to do be sustained, more information of the market helps the economy especially in personal and consumer loans."

The establishment of the locally-incorporated credit information bureau will help increase the probability of small firms to access financing from 28 percent to 40. Under the existing environment, only 27 percent of small firm are without constraints in obtaining borrowed funds. This number is projected to improve to 49 percent.

Sharing credit information, likewise, will increase efficiency of banks in processing loan applications by 43 percent while default rate could drop significantly to only two percent based on a study conducted by the World Bank, the principal of the IFC.

"This is a very basic reform that we have to implement. We have to address the basic questions of why are there bad assets in the first place?" the deputy governor stressed during a forum sponsored by the BAP.

The CIB falls under the Credit Information Systems Act (CISA), which is currently being discussed in both chambers of Congress. It will be established as a separate private sector entity under the Corporation Code.

Under the bill, banks and other credit providers would be required to provide credit information on their customers and clients. This information would be collated and processed by the proposed bureau and would be available to the bank itself, the borrowers, and credit rating agencies.