Positive credit bureau could ensure continued strong loan growth - Deutsche Bank

Friday, January 7, 2011

The creation of a positive credit bureau in the Brazilian banking sector was praised by analysts at Deutsche Bank (NYSE: DB), saying that it is "a positive structural change for the sector."

The credit bureau should improve the quality of information in the sector and could ensure that credit continues to grow "at a solid pace with high quality," analysts Mario Pierry and Tito Labarta wrote in a research note.

On the last day of his administration, former President Luiz Inacio Lula da Silva vetoed a bill to create a credit bureau that had been approved by both houses of the Brazilian congress. Lula cited the counsel of then-justice minister Luiz Paulo Barreto, who advised that the bill approved by congress lacked privacy protection for consumers, among other issues.

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In its place, Lula issued a provisory measure - known as MP 518 - that gave the green light to the new bureau. However, the measure must be approved by congress and could be subject to amendments.

The bureau will require consumers' approval to use their credit information. Furthermore, only institutions with commercial or credit relations with the consumer will be allowed to access the bureau, and any damage to the consumer caused by poor data quality will be the bureau's responsibility.

Deutsche Bank also took note of the shortfalls of the measure, pointing out that the sharing of information is not mandatory, therefore limiting the amount of data in the bureau. The analysts also expressed concerns about its effectiveness, as it is not open to everyone and the exclusion of data from mobile phones could negatively impact the low-income population, which does not have other sources to provide good credit history.