Credit Bureau data gather to beginĀ 'year from today'


Tribune Business Editor

THE Central Bank's governor expects the Bahamas' first-ever Credit Bureau will begin the data collection process "a year from today", saying: "This really will be a step up for the country."

John Rolle, speaking as the Central Bank launched the formal bidding process to select a Credit Bureau operator, told Tribune Business the facility should ultimately cause a "big positive cultural shift" in the borrowing habits of many Bahamians.

Besides providing a badly-needed check on unsustainable debt burdens, the Governor said the Credit Bureau's long-awaited creation was "a big deal" that could help revive banking industry confidence to re-start lending once again.

Besides enabling banks and other lenders to better assess a borrower's creditworthiness, and price loans accordingly, Mr Rolle added that a Credit Bureau will also likely improve credit market efficiency and reduce transaction times.

He suggested it will "elevate" the Bahamas among Caribbean competitors, with the initiative directly linking to ongoing efforts to improve the 'ease of doing business' in this nation.

Parliament finally paved the way for the Credit Bureau's creation through February's passage of the Credit Reporting Bill, and Mr Rolle conceded that the Central Bank had wanted to be much more advanced in bringing the facility to operation.

The formal Request for Proposal (RFP), seeking the Bureau's operator, was launched on Friday and bidders have until May 31 to submit proposals. A Central Bank-appointed evaluation committee, featuring one representative each from the regulator, Clearing Banks Association and Chamber of Commerce, will then shortlist two finalists by June 29.

Both will make presentations to the Evaluation Committee, and facilitate site visits by its members to their existing facilities, with the Central Bank aiming to select the winner by August 30 this year. Contract negotiations, the final step in the process, are targeted for completion by October 26, 2018. "It is very high priority. We would have liked to be beyond this part of the process," Mr Rolle told Tribune Business. "The expectation is that we would conclude the contract with the qualified operator before the end of the year because we think it very important to have the Bureau up and running, given that it will take an extra period of time to accumulate the data that participants will find most useful.

"I would honestly expect that a year from today we will have a Credit Bureau in operation at least, either in position to collect data or establish contact with the entities responsible for that data."

The Central Bank's eagerness to get on with the Credit Bureau's set-up is driven partly by the lengthy period of time it will need to amass data on nearly 250,000 Bahamian commercial bank loan accounts and credit extended by other lending institutions.

This means it will still take several years post-operator selection before the Credit Bureau becomes fully operational. K P Turnquest, the Deputy Prime Minister, told Parliament during the Credit Reporting Bill debate that it would likely take 18-24 months to become truly effective once the enabling legislation was passed.

The Credit Reporting Act is due to come into effect before this month ends, but Mr Rolle said it was "difficult" to provide a timeline for when the Bureau will become fully operational because the data has to be "accumulated over a longer period".

A Credit Bureau effectively acts as a central database, or information repository, that lenders can use to obtain a more complete, accurate picture of the risk presented by a particular borrower - consumer, family or commercial.

The Bureau will draw on historical, and current, data provided by sources including banks, insurers and credit unions to build up a history of borrowers' creditworthiness, including their track records in repaying previous loans and ability to take on new debt.

This, in theory, will put an end to the long-established practice of Bahamians 'bouncing' from one lender to another, and exploiting information gaps to access credit from multiple institutions that, ultimately, leaves them struggling under a debt burden that can never be repaid.

Mr Rolle, promising that the Central Bank will now "ramp up" its public education campaign on the Credit Bureau's implications, told Tribune Business that it will change Bahamian borrowing/lending habits for the better with benefits for the wider economy and society.

"I think it will get us to a position of greater awareness around our borrowing habits, and we will begin to develop a stronger appreciation of how our credit history affects the interest rates that we pay and who lines up to provide us credit," he said.

"I think there will be an awareness and better understanding of how one is being treated. I think it will be a big cultural shift, ultimately in a positive way. For some of us who maybe do not track their credit history as well as others, that will be a big change but positive.

"We know that on some level we have individuals who see this almost as putting an obstacle in front of them in terms of ease of getting credit, but that's not the way we view it."

Effectively warning Bahamian borrowers to 'put their house in order' before the Credit Bureau comes into being, the Governor added: "They should understand that if you engage in riskier borrowing habits you may face the cost consequences for that in an environment where the banks are more aware of it.

"The cost of making unsustainable credit decisions will be weightier."

Mr Rolle's comments indicate that a Credit Bureau will allow banks and other lenders to segment the market, and price credit accordingly. Thus borrowers with good credit histories may face lower interest rates, and monthly loan repayments, than those with previous difficulties - who may even be denied credit.

The Central Bank governor, meanwhile, said the Credit Bureau would provide "a more solid foundation" for banks and others to defend their lending policies and evaluate loan book performance.

"It's going to be a big deal for the sector, as it's going to add more comfort for lenders in certain areas as to whether their lending in safe circumstances versus riskier circumstances, and allow them to make a more informed judgment around the interest rates they set on credit," he explained.

"There should be less risk taking around borrowers. We should have a better understanding of who to lend to. Most financial institutions rely on having a good relationship with those who bank directly with them, and hope there's nothing uncomfortable outside that relationship setting.

"The Credit Bureau gives them a more complete picture of the customer from the inside and the outside, and what happens elsewhere, and that gives the bank better knowledge of whether they are overextending themselves."

Mr Rolle suggested the Credit Bureau will allow banks to "be more flexible", and also prevent a repeat - to the same extent - of the sector's long-standing post-recession 'bad' loans pile which peaked at $1.2 billion.

This sum meant one out of every five dollars lent by the Bahamian commercial banking industry was at least 30 days' past due for repayment. Now, with the banks moving more aggressively to tackle their problem credit, the issue is getting them confident enough to lend once again and provide the financing Bahamian businesses need to grow the economy.

"It will be a very important component in how the credit industry recovers," the Central Bank governor told Tribune Business. "From where we are now it's very important when talking about credit access and coming out of a period when you have a slump."

The Credit Bureau represents another step in modernising the Bahamas' economic infrastructure, this time its credit market, with Mr Rolle expressing hope that it will reduce loan application processing times and boost commercial activity in the wider economy.

Among those pushing hard for its creation is the International Monetary Fund (IMF), which called for the "steadfast implementation of the Credit Bureau" in its latest Article IV visit to the Bahamas - something it has oft-repeated in recent years.

"Moving swiftly with the implementation of the Credit Bureau is critical as it will take time for the Bureau to populate its database," the IMF said, identifying it as a key solution to some of the 'ease of doing business' obstacles obstructing Bahamian economic growth.

"It adds to what we would consider as essential infrastructure," Mr Rolle said. "In addition to wanting to see the financial infrastructure recover from the weight of some non-performing loans, they [the IMF] also want to see the institutions' confidence level grow.

"It's the confidence on new lending that's important to the economy, and the IMF and others appreciate why."