Credit bureau is positive for banking system - Moody's

Monday, May 23, 2011

The Brazilian senate's approval last week of a bill that creates a central credit bureau for consumers is beneficial for the country's banks, as it will improve the quality of credit information, ratings agency Moody's said in a research note.

"[A central credit bureau] will improve the quality of credit information by allowing banks access to consumers' credit history, which will better inform their analysis and loan origination," analysts Ceres Lisboa and Maria Celina Vansetti wrote.

Lisboa and Vansetti added that the information provided by the bureau will eventually lead to reduced loan pricing for borrowers with good credit history. They noted that Brazil's banks currently rely on information about borrowers' who are delinquent or in default, provided by central bank BCB's risk database.

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Moody's added that such information deficiency - based on historic long periods of hyperinflation and interest rates - have led banks "to charge relatively high spreads on corporate and consumer loans." The creation of a so-called positive credit bureau is "an important development that will enable banks to better differentiate good borrowers from bad ones, with consequent reductions in risks premiums."

The agency said the measure is also responding to global regulatory requirements, as banks need better quality data to update their rating models and upgrade their risk management infrastructure, in compliance with such standards.