Credit agency to police loans

Credit risk: borrowers are wanting to get their hands on cash to purchase items as fast as possible

Like many other banks operating in Vietnam, the ANZ still has to conduct a series of manual checks for appraising and examining the portfolio of individuals, and small- and medium-sized enterprises (SMEs) who want to borrow money.
Chu Viet Cuong, senior manager of ANZ’s E. Banking Services Vietnam, said that the bank appraising board had to collect information related to the borrowers from various sources which costs time and money.
With the recent change in consumer spending behaviour, consumers are now demanding credit loans for personal purchases such as a car or house, which increases the workload for ANZ employees in appraising the personal information of borrowers before deciding on the risk of the individual.
The manager of Techcombank, the third biggest joint stock commercial bank in Vietnam, said that without a private credit database, the credit department of the bank was constantly overloaded.
Day after day, the bank’s credit staff have to come to everywhere to collect accurate information related to its borrowers from their repayment capability to appraising the value of their assets secured for loans.
“It will be very useful and beneficial for us if there is a private credit database compiling and collecting information that lenders are required,” Cuong said.

Model of private credit bureaus?
The International Finance Corporation (IFC), last week, introduced the model of the private credit bureau, which was established with the participation of both foreign and domestic banks working as stakeholders.
The bureau will play the role as a database compiling information related to individuals and small business, which will be useful and beneficial for any credit organisations and commercial banks to consider before making decisions on whether to provide loans to customers.
Nataliya Mylenko, programme officer of the IFC’s Global Financial Market, said that the bureau would collect information from member banks, and payments could be made in return for information provided by concerned agencies and local authorities.
IFC’s experts said that potential bureau users will be banks, credit card providers, local finance companies, retail credit firms, insurance companies, utilities, and a number of other organisations that provide credit services.
Currently it takes some months for a local bank to appraise their customers before making a loan decision. Meanwhile, banks in other countries take only minutes to assess the risk of a loan applicant.
Experts said that even though Vietnam has established the CIC (Credit Information Centre) under the State Bank of Vietnam, information provided by this centre is not meeting the requirements of commercial banks and credit organisations.
Tran Minh Tuan, deputy governor of the State Bank of Vietnam, said that because of the fast growth of consumer credit, particularly in credit cards, the CIC with its current capacity and structure as a public credit registry, cannot keep up with credit institutions demands.
Adam Sack, IFC’s general manager said: “Vietnam’s existing public credit registry collects information on larger borrowings from banks, but doesn’t have the resources to cover smaller SMEs or consumer loans and other credit providers such as utilities and insurance companies.”
“A private credit bureau would complement Vietnam’s public registry because it would maintain and investigate the borrowing histories of a much broader range of potential customers,” he said.
“Provided would-be borrowers first agree, their detailed credit histories will enable financial institutions to assess risk better and determine what interest rates to charge.
“As such, a private credit bureau could significantly benefit banks, borrowers and ultimately Vietnam’s economy,” Sack said.
IFC experts expect that banks would benefit because a private credit bureau would warn them of borrowers who are already heavily in debt and have a poor credit history. This could appreciably reduce banks’ risk in lending and their losses from bad loans.
“As far as borrowers are concerned, experience in other countries shows that once banks begin to trust the services of a credit bureau, they will give borrowers with a good credit history better interest rates, and even loans with less or no collateral.

Promising signals
Pham Cong Uan, director of the CIC under the State Bank said that presently there are customers who are borrowing from several credit organisations and banks.
“Some customers even have access to loans from 23 different banks,” he said, adding that a private credit bureau will provide credit information and scoring, as well as the financial performance of customers.
Tu Anh Nguyen, manager of the card management centre of the Vietnam Foreign Trade Bank, commonly known as Vietcombank, said that in recent years the lack of information about customers has restricted the bank from providing loans to customers.
She said that this restriction had hindered the development of the credit card market in Vietnam. The figures released by Vietcombank show that after 10 years of development of the card market, just 100,000 credit cards have been issued and developed in Vietnam, which is a very small number in comparison with the two million debit cards issued, which are used for withdrawing cash via ATMs.
Experts said that the majority of loans that banks provide to customers require them to provide a secure asset as collateral, but now with the appearance of a private credit bureau, loans without secured assets will be increasing available.
Dao Quang Thong, deputy head of the CIC said that the governor “has [probably] accepted the establishment of the private credit bureau and should be set up in the first six months of the year”.
He said that conditions for setting up the bureau have matured due to the urgent need for a more developed credit reporting system to support Vietnam’s economic growth together with the robust development of retail market in recent years.
“In the immediate future, CIC will cooperate with other commercial banks to set up the first private credit bureau,” he said, adding that the IFC will help to advise the formulation of a legal framework for the operation of private credit bureaus and consult on technology installation.
Tony Lythgoe, credit bureau and risk management advisor of the IFC’s Global Financial Markets, agreed that CIC’s plan could be an option that could, in the short term, improve the situation.
“However,” he added, “it is unnecessary for CIC to participate in the private credit bureau. The Central Bank doesn’t take an active participation in the credit bureau.”
“It is essential for the participation of foreign institution and foreign stakeholders in the credit bureau,” he said.
He said that a conflict of interests may occur with the participation of the State Bank. “You can’t be the supervisor of the industry and also the main participant in the industry — it doesn’t make sense,” he added.
Despite keen interest, other banks remain hesitant about the operating mechanism which will be mapped out for the credit bureau. Representatives from Sacombank and Vietnam Industrial and Commercial Bank stated that they want specific regulations related to the price mechanism banks issued, as well as regulations to control those who want to use information provided by the bureau and the responsibilities of the bureau for the quality and accuracy of the information.
Lythgoe said: “When a member bank provides information to the bureau, it checks before getting into the database to make sure it looks accurate. The credit bureau can’t know whether the information it has been given is accurate.”
“It is very important for trust and quality that we get the information right in the credit bureau,” he said.
Stuart Tomlinson, Visa International’s country manager of the Vietnam, Cambodia, Laos said that as the economy grows and the capital demand increases, there should be increased demand for credit products.
“Visa strongly supports the model of the private credit bureau,” he said.



No. 744/January 16-22, 2006