BSP may seek foreign funding for study on creation of centralized credit info bureau

The Bangko Sentral ng Pilipinas (BSP) is planning to conduct a foreign-funded study on the requirements for the proposed creation of a centralized credit information bureau.

The centralized credit information bureau will be mandated to create a negative and positive list of all small and medium enterprise (SME) borrowers, microfinance borrowers, credit card borrowers and other consumer loan users.

Finance and monetary authorities said banks may soon be required to provide information on borrowers that will be available to other financial institutions to prevent fraud in credit and financial transactions.

The initiative is being spearheaded by the Bangko Sentral ng Pilipinas (BSP), the Bankers Association of the Philippines (BAP) and the National Credit Council (NCC) in an effort to unify the monitoring of borrowers.

According to BSP deputy governor Alberto V. Reyes, a comprehensive study on the legal ramification is necessary in order to determine whether the initiative will require legislative action or not.

"The first step that we agreed on is to get a technical assistance and hire a legal consultant that would evaluate all the issues involved, especially on the question of disclosure of information," Reyes said. "Right now, we’re coming up with a short list of legal consultants that we could hire to do this for us."

Reyes said the initial proposal was to create a private sector-led, omnibus credit information bureau although the concerned agencies are still drawing up the concept paper that would guide the process to completion.

According to Reyes, there is no existing mechanism for credit information exchange in the financial sector and this could lead to what the BSP calls "credit pollution" unless steps are taken to institute such mechanisms.

"Our ultimate objective is to mitigate fraud in credit and financial transactions," Reyes said. "But this means we have to re-think everything from the regulatory regime to the institution that would be created, if at all."

Reyes said there is also a need to determine how the credit bureau would deal with confidentiality issues. "One possibility is for the borrowers to waive their confidentiality privileges while the bank in turn would undertake a non-disclosure agreement," he said. "But we have to see if that is even possible."

"We have to decide whether the existing credit rating agencies could take over this function or whether an omnibus body should be created specifically to function as a repository of information," Reyes said.

According to Reyes, both options are being reviewed since there is no mandate requiring the submission of credit information on borrowers. The reliable information that is available, he said, is severely limited in coverage.

"The problem is getting reliable and reputable information on borrowers," Reyes said. He added that the group is discussing if it would be possible to require banks to provide information on borrowers that could be made available to other credit institutions.

"Right now, banks are supposed to provide this information but they are not required as a matter of policy," Reyes said. "We are looking if it is possible to require them to give information because we want this database to be reliable, reputable and tamper-proof."

Reyes said the group’s estimate was to complete the "roadmap" for the proposal within the year and hopefully initiate the process before the end of the year. "There are policy decisions to be made," he said. "At the moment, we are just tossing ideas back and forth."

Reyes said that if ever the credit bureau would be incorporated, it would be led by the private sector. "The BSP, specifically, can not be an incorporator because it is the primary regulatory body," he pointed out.