The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The introduction of a credit bureau may create a “shock” for both the banking system and consumers, a leading accountant believes, warning that it could result in many Bahamians becoming ineligible to borrow.

Gowon Bowe, a partner at Pricewaterhouse Coopers (PwC) Bahamas, while backing the creation of a credit bureau, warned that the consequences of its implementation - and the adjustments that will be necessary by both consumers and lending institutions - must be carefully considered.

“With the introduction of the credit bureau, it’s going to be a shock to the system for the consumer and the banking system,” Mr Bowe said.

“In reality, when you have a central database that has the history on the credit defaults and all of the behaviours of the consumer, the question then is will any of the bank’s metrics be met in order to be able to lend money to these customers.

“To the customer, while that will be a bad thing at the beginning, it will bring back discipline, where they don’t get themselves into situations where $0.80 out of every $1 earned is just going to the bank via salary deduction; whether it’s the banks, the furniture stores or whoever is doing in-house financing.

“I think that bureau is a fantastic idea, but we have to think of the consequences of when it’s implemented - how banks are going to adjust and how consumers are going to adjust.

“There has to be education now before it just comes in. If it comes in as a blunt force instrument, I think it’s going to be a major shock to the banking system and you will probably put it into quite a tailspin in terms of how it deals with it,” said Mr Bowe.

Central bank Governor Wendy Craigg told Tribune Business previously that it hoped to have the Credit Reporting Bill enacted before the end of the year, “but not later than the first quarter of 2014”.

Mrs Craigg told Tribune Business: “A draft Credit Reporting Bill, prepared by the International Finance Corporation, is under review by the Central Bank, the Data Protection Commissioner and members of the Bahamas Credit Bureau Project’s Legal Working Group, which was established to review the draft Bill.”

“Right now we operate in an unregulated environment, and that has two sides to it,” Mr Bowe said. “For the consumer, what they actually see is the ability to go from one financial institution to another, either refinancing pre-existing debt or actually borrowing more money, and their debt service ratio for each bank is probably within the limits of the bank itself but, when you combine it, the person has probably over-leveraged themselves.

“The downside, while the consumer sees that as fantastic because they get more money immediately, their ability to pay it back will probably put them in a situation where they will never be able to repay it.

“The other side of the coin is the banks know this is taking place, and they allow it to persist, hoping eventually to have the loan refinanced away from them before it becomes a problem loan,” Mr Bowe added.

“Between the Central Bank and the Clearing Banks Association, I know they have some things they are trying to work through as it relates to the in-house financing with some of the car dealerships, the furniture stores etc.

“I think those elements need to be ironed out, but there needs to be a greater public awareness of this new initiative that’s coming. It has positives to it because it will bring discipline, it will bring us to a sense where we don’t run into the risk the US ran into where there was effectively credit borrowing that would never be able to be repaid.”

The draft Credit Reporting Bill seeks to:

• Establish the rights and obligations of the credit bureau, its users, the organisations that supply information to the bureau, and consumers.

• Provide clear guidelines on the kinds of data that can be collected.

• Indicate how long data can be retained.

• Specify how databases will be maintained, sold or otherwise disposed of if a service provider decides to leave the market, fails or otherwise suspends services.

• Facilitate the effective supervision of the credit reporting sector, and enforcement of the requirements of the credit reporting legislation.

• Provide regulators with effective instruments for fulfilling their responsibilities.