Marzunisham Omar: Credit reporting and risk management
Welcoming remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of
Malaysia, at the BNM-IFC 4th Credit Reporting and Risk Management Training, Central Bank
of Malaysia, 9 November 2012.
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It is my great pleasure to welcome you to Malaysia and to the fourth series of the "Credit
Reporting and Risk Management Training", jointly organised by the International Finance
Corporation (IFC) and Bank Negara Malaysia. This annual workshop aims to support an
exchange of views and experiences amongst experts and practitioners on the latest
development in credit reporting methodologies and the role of credit registries in preserving
financial stability, enhancing access to finance and promoting more inclusive financial
systems.
Bank Negara Malaysia actively supports the promotion of greater regional and international
collaboration in central banking and financial services. We believe that experience sharing
amongst policymakers and practitioners is a very effective way of building capacity in
organisations. Since 2008, more than 3,500 officials from 88 countries have participated in
the various knowledge sharing programmes organised or hosted by the Bank.
This particular workshop led by the IFC, is of special interest. It aims to provide participants
better understanding of a key infrastructure in enabling well informed credit decisions to be
made based on borrowers' repayment track records.
Credit information sharing is an important element in the financial system and has important
consequences on the functioning of the credit market, financial intermediation, financial
stability and overall economic development of a nation. The sharing of credit information
reduces asymmetries of information and search costs, thereby enhancing access to
financing to a broader spectrum of the population. It also allows for more effective risk-based
pricing, which could lower the cost of financing for borrowers with good credit background
and history. With the availability of non-traditional data provided by credit reporting agencies,
borrowers demonstrating strong financial characters are able to leverage on such
"reputational collateral" to obtain borrowings at favorable terms and rates.
For lenders, credit information helps to strengthen the entire chain of credit evaluation and
credit risk management. The availability of a wide range of credit information on a real-time
basis facilitates advancements in risk and decision-making analysis, thus contributing
towards institutional soundness. For regulators, this will enhance the stability of the overall
financial system. Additionally, from a social perspective, the sharing of credit information
contributes towards inculcating financial discipline and avoiding incidences of imprudent and
excessive borrowings among borrowers. All these, combined, would definitely enhance the
overall credit culture in an economy.
The benefits of having a well functioning credit reporting infrastructure are evidenced in
Malaysia. The Central Credit Reference Information System, or better known as CCRIS,
which is owned and operated by Bank Negara Malaysia, 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. The system contains more than 22 million outstanding credit
accounts and 7.9 million borrower records. The comprehensive nature of the information
facilitates the development and validation of credit scoring models by the banking institutions,
leading to more robust credit decisions. Information provided through CCRIS allows financial
institutions to look beyond collateral and cash flow statements, to understand the borrowers'
track record in making payments. This undoubtedly contributes to higher loan growth and
better asset quality. Since the inception of CCRIS in 2001, loan outstanding grew at an
annual average rate of 8.9%, while the overall impairment ratio showed a significant decline
from its peak of 16.2% in 2001 to 2.2% currently. The World Bank, in its Doing Business
Report, has ranked Malaysia No. 1 for five consecutive years in the category of "Getting
Credit".
Another example is the Credit Bureau Malaysia (CBM) which was established to assist SMEs
build credible credit records from transactions outside the regulated banking system such as
transactions with suppliers and utility companies. With this credible credit record, SMEs that
utilise the formal banking system for the first time will be able to more effectively obtain
access to finance. CBM also has a comprehensive credit scoring methodology which helps
banking institutions assess the credit worthiness of potential customers. Further, CBM plays
an important role in educating SMEs on how credit scores are calculated and how borrowers
can improve their business operations and transaction conduct to improve their credit scores.
At end-September 2012, CBM has 28,337 SME members and had produced 707,164 credit
reports.
The development and growth of credit information registries needs to be supported by a
robust regulatory and supervisory framework. As the recovery in the global economy
continues to be weighed down by uncertainties, greater attention is been focused on the role
and scope of shadow banking entities in transmitting risks to the overall financial system.
Such entities include those outside the regulated banking system that are involved in the
extension of credit to borrowers or facilitate the credit intermediation process. Whilst credit
information registries are not directly involved in the provision of credit, it plays a significant
role in facilitating and enabling the expansion and outreach of credit intermediation by
making available credit information to lenders. If the infrastructure is not well-managed and
not subjected to appropriate oversight, it could inadvertently result in significant build up in
leverage in the economy.
In addition, the legislative framework is also critical in facilitating cross-border data flow, an
area that I foresee will be the next, if not already, major area of discussion in the credit
reporting industry. With globalisation and the increasing ease of movement of human capital
and businesses across borders, we cannot deny that there will be an increase in the amount
of credit extended across borders as well. It may be worthwhile, as we discuss on current
matters during the course of this training, to bear in mind and have foresight on the potential
challenges that may surface from cross-border sharing of information, including the
differences in legislative frameworks across different countries, confidentiality of information
and network integration.
Therefore, I note with interest that this workshop will also discuss the legal framework
surrounding the credit reporting industry. In Malaysia, the Credit Reporting Agencies Act was
gazetted in 2010, and is in the midst of being operationalised. The Act allows for the sharing
of credit information in a regulated environment, primarily seeking to strike a balance
between providing lenders with information for risk management purposes, and protecting
borrowers' rights to privacy. A Registrar has been set-up to oversee the implementation of
the Act. The Office of the Registrar has regular engagements with credit reporting agencies
to effectively implement the Act and ensure minimal disruption to the entire operations of the
industry.
While the benefits of a sound credit registry infrastructure are evident, it is critical to educate
consumers on how to use their credit reports and to manage their level of debt. Financial
education is, therefore, an important pillar which complements the work being done in
enhancing credit information reporting. Proficiency in financial knowledge will contribute
towards greater empowerment and competent financial decisions on the part of consumers,
and also result in improved financial services by financial institutions. In Malaysia, financial
education for adults is implemented through financial capability programmes, such as the
POWER! Programme, which focuses on specific life events targeting identified groups such
as young adults, low income households and public sector officials. For example, one
specific programme which was launched last month in collaboration with the Government
aims to reach out to 120,000 individuals from low income households by 2015. The Central
Bank also has a customer service centre for the general public to walk-in or call-in if they
have inquiries, or need to print their credit report. The CCRIS kiosks use bio-metric
identification embedded within the national Identification Card, and the report is produced in
less than a minute without any charge.
I believe that a holistic approach, combining credit information infrastructure with appropriate
financial education interventions and avenues of outreach to consumers, will lead to more
prudent financial management behaviours.
I would like to take this opportunity to thank the International Finance Corporation for its
leadership in the area of credit information reporting, and look forward to continuing to build
on our long working relationship. I trust that we will have a productive exchange of ideas to
further enhance the roles of credit reporting agencies in the area of risk management and to
advance the credit reporting industry as a whole. On that note, I wish you a successful and
productive programme, and a pleasant stay in Kuala Lumpur.