Advantages of a Bahamian Credit Bureau

Essay 6: Discuss the contributions that a Bahamian Credit Bureau can make to the economic development and expansion of the Bahamian Banking environment.

 One of the main challenges of lending, in a credit market, is the creation of bad credit. In 2013, The Central Bank of The Bahamas had circulated for public consultation on a Credit Reporting Bill and Regulations which call for the formation of a Bahamian Credit Bureau (CBOB, 2013).  The need for a credit bureau grows more apparent as bad debts and non-performing loans continue to weigh down the credit market, increasing the price of borrowing in The Bahamas. A report that was extracted from The Nassau Guardian stated that the cost of bad credit had resulted in $1.6 billion between 2009 and 2013, stirring Governor Wendy Craigg to these prompt provisions . The establishment of such a bureau can become a key enabler for expanding lending simply because it distributes information about the payment behavior of consumers and commercial entities. Across most of the Caribbean islands, in Trinidad and Tobago and Belize, the infrastructure and main processes of their credit bureaus are set up with credit reporting systems that comprise of the institutions, rules, procedures, standards and technology that enable information to flow relevant into making wise decisions on credit and loan agreements . The creation of a Bahamian Credit Bureau would provide financial intermediaries with the necessary tools to evaluate the credit worthiness of the consumers and to better equip the Central Bank for prudent macroeconomic actions within the economy.

One of the most important contributors will be the establishment of an appropriate legal and regulatory framework. Apart from the Banks and Trust Companies Regulations Act, 2000 which had contributed well to governance of the Banking Industry in The Bahamas, The Central Bank of The Bahamas had fostered a collaborative relationship with the International Finance Corporation (IFC), in 2013, to draft a new legislation which is designed to establish a new credit bureau with appropriate governance structure . According to Governor Wendy Craigg, it was confirmed that initial meetings were held by IFC, the Central Bank, and Office of the Data Protection Commissioner to review the draft bill. This Act will detail how the confidentiality of consumer’s personal and financial information will be maintained and it will also detail when it will be appropriate for a commercial entity or organization to receive information on a person’s or company’s credit history . Enacting new laws to establish a credit bureau will permit Central Bank of The Bahamas to conduct effective supervision of banks and develop training for regulators as well as consumer education materials. The primary purpose of creating legislation will form an important part of the banks and other lending agencies’ assessment of customer risk profiles when determining their eligibility for loans and other services.

A Bahamian Credit Bureau will be designed to alleviate the risk of lending to unknown individuals, and it does so by collecting information about a borrower’s credit history from lenders, retailers, utilities, and other available public sources. The bureau will play an essential role in improving the accuracy of credit risk assessment and preventing the chances that a consumer or company will default on its debt obligations. According to Bank of The Bahamas 2012 annual financial statement, for example, the bank had experienced various credit losses provisions due to delinquent loans, enforcing its rights against consumer collateral . The amount of loan commitments has increased from $20,118,251 million for the period ended December 31, 2011 to $31,576,880 million for the period ended December 31, 2012 (BOB, 2012). Mr. Paul McWeeney, its managing director, told the Tribune press that the unemployment-induced spike in credit loss provisions was equivalent to almost 50 percent of their $1.5 million general reserve taken from the following year, in 2013 . A main contributor to the bank’s loan loss provisions will be the establishment of a national credit bureau which will provide better banking practices in assessing a potential borrowers. According to the Tribune, the recent announcement of an increase of 200 basis points in the unemployment rate is a clear reflection that risks continue to grow . Stability can no longer occur within the credit market unless a credit bureau exist because it will allow banks to adequately predicts forthcomings as the institutions work its way through majority of its non-performing loan portfolio.

As a result of creating a Bahamian Credit Bureau, it will also promote competition within the credit markets. This will lead to a downward pressure on interest rates and fees for banks simply because they will have transparent credit information on each individual who successfully qualifies for a loan. A Credit bureau basically collects personal, financial and demographic information on individuals and firms to determine whether the perspective obligor will be able to meet its obligations, according to Credit Analysis textbook . As a result of establishing a credit bureau, Bahamian banks can have access to consumer’s credit history, reducing lender’s exposure to risky loans. In the credit decision making process, banks will determine whether to charge high or low interest rates to a specific group of consumers within the credit market or whether or not to grant loans or extend credit. Based on Governor Craigg view, she stated “as the market begins to expand expeditiously, banks will often compete by providing the best loan offers or services to Bahamian consumers (Tribune Business, 2014). It is also expected to increase access to credit and to a range of financial products by consumers on more favorable terms and at competitive interest rates, thus reducing the borrowing cost. Nevertheless, the need of a credit bureau will maintain competitive neutrality among credit providers and this would have a significant impact on the market.