BSP invites group investors for Philippine credit bureau

The Bangko Sentral ng Pilipinas (BSP) is inviting all interested private groups to invest in the proposed credit bureau.

Speaking before the members of the Chamber of Thrift Banks (CTB) last week, BSP Assistant Governor Nestor Espenilla openly invited other financial groups including the Bankers Association of the Philippines (BAP) and the Rural Bankers Association of the Philippines (RBAP).

The CTB immediately indicated interest in becoming a shareholder of the credit bureau proposed by the BSP. The monetary regulator will initially control majority equity in the proposed bureau.

"We will gladly be a part of the credit bureau because the objectives are really for the benefit of banks, especially smaller banks like us," said CTB president Benjamin Yambao said.

While the lawmakers are still conducting hearings on the proposed bill creating the credit information bureau, the plan is for the regulators to initially put up the rating firm with the BSP owning 49 percent, Espenilla bared.

The balance of 51 percent will be offered to organizations such as the International Finance Corp. (IFC), and trade group such as the BAP, CTB and RBAP.

"IFC, CTB, BAP and RBAP are welcome to become investors," said Espenilla, adding that the long-term objective is to give opportunity to the depositing public to own an equity via initial public offering (IPO).

For now, the bill on the establishment of a comprehensive credit information bureau, Senate Bill (SB) 1843, is being deliberated on second reading by the Senate. Espenilla said the monetary authorities are hoping that it could be enacted into law by April. Should this time table be followed, Espenilla said the rating firm will be put in place and operationalized within six months after the measure has been signed into law, at the earliest or before the end of the year, at the latest.

The credit bureau will address the current problem of the lack of centralized information, regarding the credit history and track record of individual and corporate bowers.

Its operationalization will improve the overall availability of credit, especially to small borrowers and reduce excessive dependence on collateral to secure credit lines.

As a result, the lenders will be assured of the good credit standing of the borrowers, reducing the risk of default, shorten administrative costs, and decrease intermediation cost. On the other hand, borrowers will benefit from its creation through lower interest cost not to mention its contribution to a healthier and more stable financial system.

Based on the study conducted by the World Bank, the establishment of the locally-incorporated credit rating firm will help increase the probability of small firms to access financing from 28 percent without a credit bureau to 40 percent.

It will also reduce financing constraints for small firms. 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. "It will be cost-effective because by a touch of a finger, a bank can get all the available information needed in deciding whether to approve a loan or deny a facility," said Yambao. – Ted Torres