Despite much emphasis being placed on the importance of an independent credit bureau in helping reduce non-performing loans, such an initiative does not seem to be taking off in Singapore.
Since Singapore’s SME Credit Bureau launched its ‘live’ online database in September 2005, response from the country’s banking industry has been lukewarm. DBS is the only major bank planning to link up to the database while most other banks are still assessing its usefulness.
Standard Chartered (Singapore) is one bank still mulling its options. Its general manager for SME banking, Ho Twon Bah, says his bank is open to linking up to the bureau’s database and is currently “monitoring and assessing the benefits of the (SME) credit bureau”. Ho adds, “Third party (risk index) is helpful but the bank should not abdicate its responsibility in assessing the credit.”
OCBC is in a similar position. Sng Seow Wah, the bank’s head of enterprise banking, says, “Information in a credit bureau is just one of the many factors that banks take into account when reviewing a company's viability for credit.” He explains that apart from financial information, banks also consider other factors such as the company’s business model and its viability.
The ‘live’ database, which stores credit histories of local enterprises, allows banks to retrieve credit reports that are updated instantly. Two kinds of credit report are available – a basic commercial report and an enhanced commercial report that contains two risk indices developed by Infocredit Dun and Bradsheet (D&B), which runs the credit bureau.
“The scores and indices will enable lenders to understand borrowers’ credit standings objectively. They will also add value to our clients’ credit (application) process,” says Audrey Chia, Infocredit D&B (Singapore)’s director of product development and marketing. Chia adds these credit indices also help banks speed transaction processing and increase decision consistency by reducing subjectivity in the credit analysis process.
One of the indices, Paydex, is a single numerical value computed based on the sizes and promptness of loan payments that reflects a company’s payment behavior. The other index, the New Credit Risk Index, assesses various aspects of an enterprise such as its financial information and company size, and assigns it a risk class indicating the business failure rate in that class.
Such credit reports and indices are common in other countries such as the United States and are widely used by banks there in their SME lending technologies. Banks here in comparison are less willing to make use of these data supplied by third party vendors.
With most banks here still using such SME lending technologies that are relationship-, financial statement- or asset-based, it is not surprising that Infocredit’s credit reports and indices have not caught on. These are more heavily used in credit-scoring models, which are statistically based.
Ho says, “Statistical lending tends to be for much smaller amounts”. Most credit-scoring models in the US on the other hand are designed for use for only up to $250,000. Ho adds that his bank usually deals with SME loans that are in the millions.
But Infocredit’s credit reports and indices could yet gain popularity. With increasing competition for SME clients, some banks are already targeting the lower value segment that can be better analysed using credit-scoring models. Banks may find relying on data provided by third-party vendors more cost-effective than to wholly collect them in-house. - H.W. Ng