MAKATI CITY, 15 January 2020 – Signaling a growing appreciation for the value of a shared credit database to promote financial inclusion and risk-based lending, more and more financial institutions, now led by cooperatives and rural banks, submit credit data of their borrowers to the Credit Information Corporation’s (CIC) database.
In its Letter-Circular 2019-02 dated 23 December 2019, the country’s sole public credit registry and repository of credit information published the list of 30 additional financial institutions that are submitting basic credit data of their borrowers pursuant to Republic Act No. 9510 or the Credit Information System Act (CISA).
Rural banks dominated the list with an additional 14 submitting entities covering the places of Pampanga, Cavite, La Union, Cebu, Quezon, Ilocos Sur, Pangasinan, Camarines Norte, Southern Leyte, Batangas, and Tarlac.
Meanwhile, cooperatives showed a marked improvement in compliance with the entry of Caniogan Credit & Development Cooperative; Cooperative Bank of Bohol; St. Martin of Tours Credit and Development Cooperative; and the multi-purpose cooperatives of Adamson University Faculty, Bohol Community, Mangagoy Fishermen, Morong Kabalikat, and PGH Bayanihan.
The increase in cooperative compliance is supported by Memorandum Circular No. 2019-01 issued by the Cooperative Development Authority (CDA), stating that cooperatives must submit credit information to the CIC.
Other financial institutions that made the list were AND Financing Corporation; Asia Link Finance Corporation; Citystate Savings Bank, Inc.; First Digital Finance Corporation; Pagasa ng Masang Pinoy Microfinance Inc.; Pagasa Philippines Lending Company Inc.; Philippine Trust Company; and RSA Prosperity Microlending Philippines.
As of 31 December 2019, there are 1,736 submitting entities that are registered with the CIC. These are made up of universal and commercial banks, credit card issuers, thrift banks, rural banks, cooperatives, government-owned and-controlled corporations, private lending institutions, insurance companies, and financing and lending institutions. Out of this number, 474 are already contributing both positive and negative credit data — among other relevant data points — making the CIC database the largest in the Philippines, with the most diverse set of contributors. Other lenders are currently working on their compliance requirements.
“The old way of thinking is that the use of negative data about a borrower is more important than positive data in order to prevent default when giving out loans,” CIC President and CEO Jaime Casto Jose P. Garchitorena shared. “But research over the last decade has shown that when positive and negative data are used, default rates are actually lower.”
Balanced view of creditworthiness
A recent release of the Credit Reporting Knowledge Guide 2019 from the World Bank includes studies showing that the inclusion of positive information in the lending process had the potential to reduce default rates of 22 – 45% in some economies.
“If we were to oversimplify the value of lenders using positive and negative data, we could say that if lenders only look at negative data, then the likelihood of approving a loan will be lower. In other words, the loan application will be denied,” Garchitorena explained.
“On the other hand, when a lender takes the time to include the borrower’s positive data in their evaluation — which is a more balanced view of a person’s creditworthiness — the likelihood of approving a loan with less risk is higher. Since lenders are in the business of lending and not in the business of denying, then it makes more sense to get both negative and positive information of the borrower before making a credit decision,” he continued.
Garchitorena likewise shared that CIC will regularly publish an updated list of financial institutions that are submitting credit data: “We feel that publicly recognizing our compliant submitting entities is a reward in itself. It is a seal of best practice and shows the borrowing public and those just shopping for credit
that these lenders are supporting their good borrowers by improving their creditworthiness. At the same time, compliant lenders also protect the borrowers who are at risk of default by preventing over-indebtedness.”
For 2020, the CIC shall continuously increase the number of submitting entities and improve data quality while maintaining a high level of data security and availability.
“For a long time, good quality and comprehensive credit data were available only to a few financial institutions and for smaller institutions, if at all, at a fairly high cost. The CIC wants to rationalize the availability of this data so that lenders can lend more with less risk, and borrowers — even when having a combination of positive and negative data — can leverage off their credit history for better terms and rates,” the PCEO concluded.
This press release had also been picked up by BusinessMirror.