Personal loans hit by credit reports
Avia Collinder, Business Reporter
The Bank of Jamaica in its most recent Credit Conditions Survey suggests that borrowers are facing a new head wind with information flowing from the operations of the nascent credit bureau system.
The two credit bureaus that went live in 2013 have indicated that they have the capacity to serve a market generating 400,000 new loans per year.
The BOJ said in its report that lenders have reported tighter credit conditions for the June quarter, due to increased instances of late repayments and a stronger need for loan monitoring.
"Additionally, some borrowers in the personal loan market were adversely affected by reports from the credit bureaus," the report said, adding that lenders also indicated a worsening of credit conditions for the September quarter.
On the plus side for consumers, lending rates fell from 20.69 per cent on average in March to 19.25 per cent in June and is projected to fall further to 18.86 per cent in September.
Lenders overall are placing closer attention to risk in Jamaica's slow economy, a process facilitated by the credit history, reports and scores generated by the new bureaus.
"They are now receiving full information on the current credit exposures of their clients whereas, before credit reports, they would only know what the applicant chose to tell them," said Megan Deane, CEO of Creditinfo Jamaica Limited.
"They will also now know whether current obligations are being handled according to the agreement or not. As such, with receipt of full information, their risk assessment may determine that an applicant should not be taking on more debt."
Deane said that if report indicates a previous default or current un-serviced obligation, typically, the loan is first automatically declined by the lender and then the applicant has to seek managerial review of the decision.
"It depends on the credit rules and decision criteria of the particular institution. Decision rules vary, depending on the appetite for risk," she said.
Deane said she would not be able to provide the "percentage of requested reports that fall into the negative or 'iffy' category" because the bureau does not 'see' the reports being pulled. That information would have to come from the lenders pulling the reports.
Retail banking managers canvassed were largely unwilling to share specific information on the impact of credit reports on their loan approval process.
"Credit checks were always part of the CIBC FirstCaribbean International Bank's credit application process and we have not seen any increase in declines recently, as a result of reports from credit bureaus now being available," said the CIBC FirstCaribbean Jamaica office.
JMMB Merchant Bank said that while it has "welcomed the inclusion of credit reports, in supporting our adjudication processes ... we are not at liberty to discuss the number of applications we receive, or statistics surrounding our approval of those applications. We consider that kind of information to be highly confidential."
None of the top three banks - National Commercial Bank, Scotiabank and Sagicor - responded to Sunday Business queries.
Deane says the comprehensive profile created by credit reports examines many aspects of borrower behaviour.
"Credit scores are mathematical calculations that track the payment pattern of the consumer - Do they always pay on time? Are they late or partial payers? It is also influenced by how much debt the subject has compared to their available credit limits, for example, on credit cards, number and type of credit exposures and myriad of other parameters including demographics," said the credit bureau manager.
"It is a highly specialised field," she said.
Deane adds, however, that she doubts any institution is being guided solely by a borrower's credit score, saying the lenders are more likely to be tracking the predictability of Credinfo's scores against actual performance of the loan.
"At this stage, I would expect they are more being guided by the comprehensive information we are providing and then determining if the individual applicant can actually take on more debt," she said.
The information used to develop credit reports and scores generated by the credit bureaus - the other player is CRIF NM Credit Assure - is pulled from seven years of borrowing history and credit consumption.
In August, the Credit Reporting Act was amended to also allow the credit bureaus to pull data from utilities, telecommunications providers and other billing companies, to assist in the generation of credit profiles.
Deane, a year ago, had lobbied for such companies to be designated credit information providers, saying while some Jamaicans might not have a credit history, they are often the owners of one or even two mobile phones and that the consumption of airtime and call credit could be used to analyse and predict credit behaviour.
Deane said then that research by the IFC, an arm of the World Bank, showed that "how people pay their water bills is a very good indicator of how they will handle credit."