Sharing credit information

inSight

22 Apr 2004

Sharing credit information

The sharing of credit information among banks, subject to the protection of data privacy, helps to promote a more effective banking system. Two current initiatives designed to facilitate this are making good progress.

As banking supervisor we have, for a long time, been emphasising the need to assess and manage credit risks, not just through the requirement of adequate security in support of bank loans, but also on the basis of relevant information concerning the creditworthiness of borrowers. Reliable credit information will thus increase the effective working of the banking system, by helping to ensure that financial resources are channelled to those who are in a position to make effective use of them. It will also enable differential pricing to reflect different degrees of risk taken by banks in extending loans.

It was against this background that we promoted the compilation and sharing of credit information. This was done through two separate projects: the operation of a Commercial Credit Reference Agency (CCRA), targeted first at small and medium-sized enterprises (SMEs), and the sharing among authorized institutions of consumer credit data, or what is called positive data sharing. Both projects have been progressing well.

In the CCRA project, authorized institutions engaging in SME lending have been seeking the consent of their customers for disclosing their data to the CCRA, in the form of Dun & Bradstreet, the CCRA operator selected by the industry. Out of the 215 authorized institutions in Hong Kong, 118 are engaging in SME lending. These AIs have, on average, so far sought consent from 40% of their SME customers during the three months since the consent seeking process started in October. So far, the response rate to the requests for consent is running at 54%, and of those responding, the consent rate (i.e., for disclosure) is about 95%. The consent rate of 95% is quite encouraging. It suggests the support, or the lack of concern, among SMEs for the manner in which their credit data is to be organised and used. The response rate of 54% appears to be on the low side, but it probably reflects the time required by SMEs to respond to banks' requests. Our recent discussions with banks suggest that the response rate is generally picking up. We will continue to encourage the lending institutions to expedite the process of consent seeking from their SME customers. Meanwhile, the CCRA operator, working with the Industry Working Party, will be finalising the scheme's operational details, including systems and reporting requirements. . The CCRA operator has also held briefing sessions to help the lending institutions familiarise themselves with the technical details. The CCRA is expected to be up and running in the second half of 2004.

With consumer credit data sharing, there is much sharper community focus on the privacy concerns. To address these concerns, the Privacy Commissioner last year revised the Code of Practice on Consumer Credit Data, which is underpinned by a Supervisory Policy Manual (SPM) module on positive data sharing issued by us. The objective of these is to ensure that authorized institutions active in consumer lending have in place adequate systems to protect consumer data privacy. As banking supervisor, we have also organised a series of special on-site reviews to monitor compliance with the Code and the SPM module. Up to the end of March, all the 37 visits planned have been completed. In a minority of cases, improvements to their systems for protecting customer data privacy have been identified. We are following up with the institutions concerned. Meanwhile, we are assessing the extent to which the benefits expected to flow from positive data sharing are actually achieved. The assessment, which will be prepared on the basis of a set of indicators agreed with the Consumer Council, is in progress, and we shall publish the results in due course.

We are confident that the availability of reliable credit data to the banks will improve the effective working of the banking system. More efficient allocation of bank credit will also increase the asset quality of the banks and therefore contribute to the general stability of the banking system. These are clear objectives spelt out in the preamble of the Banking Ordinance.

 

Joseph Yam

22 April 2004

 

Related Supervisory Policy Manual modules:

 

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