Banks urged to reveal credit history of debtors

Urip Hudiono, The Jakarta Post/Jakarta

Bank Indonesia (BI) should require all financial institutions to participate in its plan of setting up a credit information bureau, to ensure that its goal of creating a more solvent lending environment in the country is achieved, analysts said.

"There has to be a strong commitment from all banks to make the plan successful," analyst Aviliani from the Institute for the Development of Economics and Finance (Indef) said.

"BI could ensure this by making it compulsory for all lending institutions to submit their customers' credit histories to the bureau."

In line with the Indonesian Banking Architecture (API) blueprint, BI has made plans to establish a credit information bureau by next year, which would have the function to collect the credit histories of corporate and individual debtors from participating lenders.

This database would be helpful for lenders to obtain more comprehensive information about the debtors, and encourage more lending if they knew the exact risks when considering future loans for the debtors.

According to the plan, BI will extend its existing debtor information system (SID) and pass it on to the planned bureau. It will start by collecting credit histories from commercial banks, and later on from other financial institutions, such as insurance companies, pension planners and credit card issuers.

Aviliani explained that if not all lending institutions were included, then debtors with bad credit history could simply submit their credit applications to lenders that do not have access to the bureau's database, which would cause too many loopholes in the system for it to be effective.

Aviliani also warned that the banking secrecy code might become a major hurdle in the establishment of the credit bureau.

"BI should consult with the government about whether an amendment of the (banking) law is needed so that the bureau can collect the information about debtors that it needs," she said.

Analyst Ryan Kiryanto of Bank BNI, however, said that the law would not be a problem.

"The law only forbids lenders from disclosing information of their customers' savings accounts, not about their credit history," he said.

Nevertheless, Ryan agreed with Aviliani that the central bank should incorporate as many lending institutions as possible. Ryan even suggested that BI make it compulsory for publicly listed firms to submit their credit reports to the bureau as well.

"That way, stock market authorities can simply inquire with the bureau when a company plans to issue more shares or bonds," he said.

Ryan explained that a company which has reached its credit limit with lenders would usually resort to issuing shares or bonds at the market to raise more capital. Stock market authorities, however, must be assured that such a corporate plan was not done just to avert bad credit history.

Both Aviliani and Ryan also agreed that the establishment of such a bureau would surely benefit the country's lending industry, particularly in further reducing non-performing loans (NPL).

"It will also prevent individual debtors from trying to commit credit card fraud," Ryan said.

Data from BI shows that bank credit volume had reached Rp 555.1 trillion (US$61 billion) as of the end of September. NPL stood at around 2 percent, below the maximum 5 percent allowed by the central bank.

Data from the Indonesian Association of Credit Card Issuers, meanwhile, shows some five million credit card users making between 10 to 20 million transactions worth some Rp 30 trillion in October this year.