Credit information in Thailand - Bank for …

1 Credit information in Thailand Davina Kunvipusilkul 1. 1. Introduction After the financial crisis at the end of the 20th century, commercial banks were greatly affected by non-performing loans and needed to tighten their lending practices. At the same time, large companies, drawn by lower cost, started to raise more funds from the capital market. While the assets of commercial banks as a proportion of gross domestic products have been declining, small and medium-sized businesses still depend on bank loans as their major source of funds. After the financial crisis, the government and the financial sector realised the need for better information , and Credit reporting agencies were established.

2 Chart 1. Financial assets compared to GDP (current price). % GDP. 120. Thai commercial Banks 100. Registered Capital in the Stock Exchange of Thailand 80. 60 Outstanding Government Bonds and Private Debentures 40. Specialized Financial Institutions 20. Branches of Foreign Banks 0. 2000 2001 2002 2003 2004 2005 2006. Sources: Bank of Thailand , Stock Exchange of Thailand , Thai Bond Market Association. From surveys and opinion polls conducted by the Bank of Thailand , businesses rank deposit and loan services as the most important services from financial institutions currently, and rank loan services to be the most important service in the future. However, despite the great importance, small and medium-sized enterprises report having difficulty in obtaining the service, with a large proportion not having access at all.

3 Similarly, many individuals have problems with Credit services from financial institutions and have to resort to alternative, less desirable providers, such as private money lenders. Some of the reasons cited are that the process is tedious, the number and types of documents required are burdensome, and/or the 1. Data Management Department, Bank of Thailand , IFC Bulletin No 31 49. approval/rejection decisions take a very long time. Some respondents do not understand how the system works in general, and some have had problems in the past. Financial institutions also recognise the importance of loans services and acknowledge the existing gap in the system.

4 Some of the difficulties can be attributed to internal factors and government regulations, while others stem from the clients, such as inadequate financial statements, lack of collateral or just simply that the client does not meet minimum requirements. Various authors, such as Avery et al [2], Frame et al [7], and Turner and Varghese [15, 16], have suggested that Credit bureau information and Credit scoring models can help increase Credit access, improve the quality of Credit decisions, decrease the time and cost of Credit evaluations, and allow banks to assess their risks more accurately. Turner and Varghese [15]. have shown that full-file, comprehensive Credit reporting by private bureaus seems the most effective.

5 Credit reporting practices differ from country to country. Some countries, such as Australia, prohibit sharing of positive data, while some countries, such as the United States, allow for more comprehensive data collection. Available services range from simple data provision to Credit scoring, loan monitoring, fraud detection and other services. The extent to which Credit information can be used also varies widely. Some countries have only private bureaus, some only public bureaus, and some have both. There are almost a thousand Credit reporting agencies (four to five main ones) in the United States, two main Credit bureaus in Australia, and yet many Asian countries have only one.

6 Thus, the use of Credit histories and/or Credit scores from central Credit reporting agencies may help to alleviate some of the problems faced by Credit seekers and financial institutions in Thailand . This paper will be divided into three main sections: The Thai Credit reporting industry; analysis; and limitations and possible improvements. 2. The Thai Credit reporting industry The Credit reporting industry in Thailand is less than a decade old. Unlike in many developed countries, where Credit bureaus developed naturally, Thai commercial banks used to rely on the Bank of Thailand for exchanges of information on high-volume borrowers. In 1999, two Credit reporting agencies were established in Thailand as a result of government initiatives to promote more stability in the financial system, to increase efficiency in giving loans, to reduce risks and non-performing loans, and to allow the Credit information business to develop.

7 At the beginning, there were no specific laws governing the Credit information business and the two Credit bureaus operated under the basis of civil and commercial codes. The Thai government later passed laws and amendments to regulate the Credit information business: the Credit information Business Acts 2545, 2549 and 2551 (in 2002, 2006 and 2008, respectively). The acts give relevant definitions and cover all aspects of the Credit information business including operators, rights and obligations, privacy protections, and supervision. Only a limited or public limited company can operate a Credit information business. The company must obtain a licence from the Minister of Finance.

8 More than half of the registered capital of a limited company or the paid-up capital of a public limited company must be held by Thai nationals. In addition, more than half of the board of directors must be Thai nationals. No other persons or entities may engage in the Credit information business. By law, Credit information can be disclosed only to members or users who wish to use the information for Credit analysis and evaluating Credit card applications, and only with prior consent from the information owner. Credit reporting agencies can store both positive and negative information , but there is a limit on the length of time negative information can be stored: three years for consumer Credit and five years for commercial Credit .

9 Fortunately, 50 IFC Bulletin No 31. Thailand has a national identity card system that gives each individual a unique identification number. This makes it much simpler to determine the identity of each account's owner and to reconcile all the accounts a person may have. In 2005, the Ministry of Finance approved the merger of the two existing Credit reporting agencies and National Credit Bureau, Co., Ltd. (NCB) was established. As of February 2008, NCB provides consumer and commercial Credit reports to 81 members. It has information on approximately 56 million consumer accounts from 16 million consumers, and approximately 4 million commercial accounts from 200,000 business entities.

10 NCB does not provide data to non-members and all members are required to submit data to NCB regardless of whether they make any inquiries, although the law allows for user members who do not submit data. NCB currently handles about million consumer Credit inquiries per month, about 80% of which are for new Credit analyses and the other 20% for Credit line reviews. The hit-rate for consumer inquiries is over 80%. The demand for commercial Credit reports, on the other hand, is much lower, at about 12,000 inquiries per month, almost all for new Credit analyses. Members are required to pay a monthly fee of 50,000 baht ($1,515). The cost of each inquiry by a member is 12 baht ($ ) for a consumer report and 100 baht ($3) for a commercial report.