Credit Information Bureau (CIB) report plays a crucial role in financial institutions. The CIB report is especially useful for the lending institutions to make decisions regarding individuals and small and medium-sized enterprises (SMEs). While lending to large companies, a detailed analysis of the potential borrower's financial standing, including past payment history, is found to be a sufficiently good predictor of the probability of default of those companies.
In the opinion of experts, the CIB report helps reduce the ex-ante cost and time of loan processing and the ex-post rate of default, which encourages banks to report credit information to the CIB database.
The CIB was set up in Bangladesh Bank on August 18, 1992. One of the objectives behind setting up of the CIB was to minimize the extent of default loans by providing the participants with timely reports on credit information based on the enquiry/request about the loan applicants so as to facilitate credit risk analysis by the banks/FIs and decide promptly on the loan applications.
In practice, banks are usually more willing to lend to clients based on their borrowing capacity and good repayment history. The goal of CIB is also to ease problems arising between borrowers and lenders. Formal information exchanges help lenders identify good borrowers, thus reducing the incidence of wrong selection. The practical consequence is better risk management, which enables banks and FIs to avoid risky large loans and increase their lending volume to small and medium-sized enterprises (SME) thus contributing to economic growth, employment generation and poverty alleviation.
Bangladesh Bank started providing online information of its Credit Information Bureau (CIB) reports to banks and non-banking financial institutions (NBFIs) from July 19, 2011. Earlier it was manual-based which was more time-consuming and was eventually replaced by an online system to ensure efficient, faster and transparent services by the country's banking sector.
The online service has made the CIB reports only a click away, which took five to seven days in manual-based system. The Election Commission and other government organizations and agencies can also get necessary information to determine whether a particular person is a loan defaulter or not. This information would help combat credit-related corruption. Credit reporting to CIB database by banks/FIs (financial institutions) enables proper sharing of credit information to take proper decision avoiding defaulting borrowers and thus reducing default rates. This will allow borrowers to obtain credit promptly and facilitate timely implementation of projects and marketing their products to the market.
Banks/financial institutions classify outstanding loans when they become non-performing loans (NPL), according to the existing banking sector accounting rules. These policy and regulations are followed by participating banks/FIs while reporting data to the database of the Credit Information Bureau. As per policy, the non-performing loans arising from overdue amount in relation to the principal and/or interest are classified as Substandard (SS), Doubtful (DF), Bad/Loss (BL) and Bad/Loss-Write Off (BLW) loans. Classification, status and provisioning of these loans are determined and approved by the respective Boards of Directors of the banks/ FIs as per Bangladesh Bank rules. The rescheduled loan as per 'Policy for rescheduling of loans' refers to a loan that was overdue because repayment in full was not made according to conditions initially laid down but for which the terms have been renegotiated without further guarantees provided by the party. In such circumstances, the rescheduled loan is no longer classified but becomes 'unclassified'.
As per the existing provisions, outstanding loans worth at least Tk 50,000 are included in the CIB reporting system. Recently it has been decided by Bangladesh Bank that even a Tk.1.0 loan defaulter will be included in CIB report and the decision will be implemented shortly. In case of credit cards, there is no record below Tk.10,000 defaulter and now this amount will be Tk.1. According to BB data till February 2017, below Tk.50,000 in credit card and other borrowers are 245,427 in number and borrowers above Tk.50,000 are about 1.27 millions. According to the report of BB to Ministry of Finance, number of borrowers was 4.01 millions till February 2017 which was included in CIB data base.
In CIB report the credit history is available for only 12 months which will be 24 months shortly. This will help one to understand the repayment pattern of the borrowers. Moreover, the clients are found taking loans against collateral security of land, machineries, etc., which do not exist in reality and/or double mortgaged properties which are hazardous for the lender institution. Information on collateral securities are also incorporated in CIB report in order to prevent any possibility of such undesirable situation. In a nutshell, CIB reports can cut down loan processing time, lender costs and ensure smooth operation, flawless filtering and avoid the sense of déjà vu of loan default for the concerned lending institution by retrieving the payment history of a borrower.
The writer is Head of CRM, FAS Finance & Investment Ltd.
