Jessica Chew Cheng Lian: Credit reporting and risk management training
Welcoming and opening address by Ms Jessica Chew Cheng Lian, Assistant Governor of the
Central Bank of Malaysia, at the Third Credit Reporting and Risk Management Training,
Kuala Lumpur, 26 September 2011.
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It is my great pleasure to welcome you to Malaysia and to the third series of the Workshop
on "Credit Reporting and Risk Management Training", jointly organised by the International
Finance Corporation (IFC) and Bank Negara Malaysia. This annual workshop has provided
an important platform for experts from the different parts of the world to exchange views and
experiences on developments in the credit registry landscape and the role of credit registries
in preserving financial stability and in contributing towards economic and social development.
Indeed, centralised credit information registries, or credit bureaus, are a critical part of the
infrastructure that facilitates and enables the efficient expansion and outreach of credit
intermediation in an economy. This is now well-supported by empirical evidence. A
wellfunctioning credit bureau serves as a lubricant to the intermediation process by overcoming
one of the fundamental challenges with any credit market, that is the asymmetry of
information between lenders and borrowers. The wider use of credit information can make an
important contribution to prudent financial management, not just among borrowers by
minimising incidences of excessive borrowings, but also among lenders by encouraging
greater discipline during periods of exuberance when lenders may be tempted by rapid rises
in asset prices and perverse incentives, to throw caution to the wind. It also has an important
role in promoting access to financing for various segments of the society. Borrowers who
maintain a good credit history and demonstrate strong financial discipline are able to
leverage on such "reputational collateral" to secure borrowings at more favourable terms
and rates.
Credit registries have also been used extensively to support enhanced banking and financial
market supervision. There can be little doubt, particularly after the events of the sub-prime
mortgage crisis, that the accumulation of credit that is premised on informed credit decisions,
whether taken at an individual, institutional or system-wide level, will contribute to the stability
of the overall financial system.
While the collection of credit information on borrowers in Malaysia started many years ago, it
was not until the aftermath of the Asian Financial Crisis that a centralised credit information
registry was realised. The crisis proved to be a defining moment for Malaysia on several
fronts and was instrumental in advancing critical reforms in the development of our financial
infrastructure. The Central Credit Reference Information System, or CCRIS, (owned and
operated by Bank Negara Malaysia) was established in October 2001 and has since been
acknowledged as one of the most comprehensive public registries in the world. The
operationalisation of CCRIS expanded the role of the credit information registry beyond a
supervisory focus to supporting prudent and more efficient credit and financial management
decisions among Malaysian borrowers and financial institutions.
CCRIS enables real time access to both positive and negative credit information on all
borrowers in the banking system and of a selected group of non-banks. At present, the
system contains more than 21.9 million outstanding credit accounts and 7.6 million borrower
records. The system is supported by rigorous controls that protect the integrity of such
information, which in turn, enables the Bank and supervisors to perform granular and
multidimensional analysis and assessments of credit risks and credit-related vulnerabilities in the
banking system.
For banking institutions in Malaysia, the ability through CCRIS, to tap into ten years of
borrower credit records spanning the entire population of banking institutions has been
instrumental in accelerating enhancements to the management of credit risk by banks, in
particular the development and validation of credit scoring models. Today, information
extracted from CCRIS is used as a key input in banks' credit decisions. The availability of
current information has also facilitated more expedient and robust credit decisions. Hence,
while banks' exposures to the household sector have been on a strong growth trajectory and
account for more than half of banks' lending portfolio, the quality of the portfolio has
remained sound, with a net impairment ratio sustained at a low 2%. The banking system's
exposures to other retail and small businesses have also grown in the last decade, in part
due to the established credit track record captured in CCRIS, which have enabled small and
medium sized enterprises (SMEs) and micro enterprises to benefit from improved access to
financing. These developments in turn, have resulted in a more balanced and diversified
credit portfolio of banking institutions.
In addition to CCRIS, there exist other private sector-owned credit bureaus in Malaysia that
specialise in niche areas of value-added information and that offer differentiated risk
management products to financial institutions. With the wider use of information provided by
these credit bureaus, a priority has been to put in place a structure and framework for the
appropriate oversight of their activities. This is essential to provide the necessary safeguards
and to protect the privacy of data subjects. It is also equally important to ensure the
accuracy, completeness and timeliness of credit information that is used by financial
institutions to form credit decisions. Inaccurate, incomplete and dated or delayed information
can have damaging effects on individuals in terms of access to financing, while exposing
banking institutions to the risk of losses. Two key pieces of legislation that were recently
enacted to support these outcomes are the Credit Reporting Agencies Act 2010 and the
Personal Data Protection Act 2010. The Credit Reporting Agencies Act 2010 governs the
operations of private credit bureaus and provides for the development of a regulated and
structured credit information sharing industry. The Personal Data Protection Act 2010 on the
other hand regulates the collection, processing and handling of personal information for
commercial purposes by data users and provides safeguards for the data subjects against
the abuse of such information for improper or unauthorized purposes. The operationalisation
of these laws are currently in progress and we look forward to a productive exchange of
experience during the course of this workshop which will benefit our own efforts to build a
conducive environment for the orderly development of private credit bureaus.
Despite the compelling public benefits provided by credit registries, regulators face
considerable challenges in educating consumers to appreciate how credit reports can help
enhance their access to credit and improve the terms under which credit is provided. The
role of regulators in public outreach is particularly important in the initial stages of building
credit reporting systems to promote public confidence and wide participation. A common
frustration that has emerged from the more pronounced emphasis on credit reports in lending
decisions has been that access to credit increasingly depends on an individual's credit
history, and yet, one can only build a credit history if credit is granted. I note with interest that
the workshop will discuss potential solutions to this dilemma. It is important that as the credit
reporting landscape continues to evolve and assume more prominent roles in influencing
borrowing and lending behaviours, appropriate attention is paid to consumer education to
mitigate consumer anxiety and ensure that consumers understand and can exercise their
legitimate rights.
As uncertainties continue to cloud the global economic outlook at a time when borrowers
have become more financially literate, lenders have become more innovative, and financial
products have evolved to become more sophisticated and intricate, the need for an effective
and efficient financial infrastructure becomes increasingly more critical to ensure the prudent
expansion of credit and risk taking. This workshop addresses a key part of that infrastructure
that can contribute towards avoiding damaging effects of a financial crisis induced by credit
excesses.
Before I end my remarks, allow me to say a few words about this magnificent building,
Sasana Kijang. Designed to be a nexus for thought leadership and collaboration in central
banking, "Sasana" is a Sanskrit word that describes a site, centre, building or arena where
communities gather for meetings, while the Kijang is a small yet very intelligent animal that is
depicted in Bank Negara Malaysia's logo. The architectural concept of Sasana Kijang is
inspired from the shape of the Cowrie shell, a popular form of money in the Malay Peninsula
during the 3rd century with its building facade derived from the geometric patterns of
traditional Malaysian songket motifs, reflecting the hand woven fabric designs.
Sasana Kijang hosts a learning centre with state-of-the-art training facilities for local and
foreign participants and provides opportunities for the exchange of views and experience
towards promoting capacity building in central banking. In addition to training facilities, offices
and conference halls, Sasana Kijang also houses the Bank Negara Malaysia Knowledge
Management Centre and the Bank Negara Malaysia's Museum and Art Gallery which is open
to the public. I hope all of you will take the opportunity to explore the Bank's collection
displayed at the Museum and Art Gallery and to enjoy the activities in the Knowledge
Management Centre. As visitors to Malaysia, your stay here is not complete unless you have
treated yourself to the variety of food, traditional and modern, that the country has to offer.
On that note, I wish you all a productive engagement and a pleasant stay in Kuala Lumpur.