Banks get access to rival clients’ loan payment records

A KCB branch banking hall. A Central Bank of Kenya report notes that 79 per cent of banking institutions surveyed request credit reports for all loan applications. FILE 

By  CHARLES MWANIKI

In Summary

• Banks were previously required to only share information on defaulting customers, which limited the role of credit reference bureaus to helping the lenders blacklist loan defaulters.

Banks face increased competition for customers who have good loan repayment records following the gazettment of new regulations that will require lenders to submit to the credit reference bureaus information on borrowers who pay their loans on time.

Banks were previously required to only share information on defaulting customers, which limited the role of credit reference bureaus to helping the lenders blacklist loan defaulters.

The regulations were gazetted by Treasury secretary Henry Rotich on January 23 in a Legal Notice.

“An institution licensed under the Banking Act shall in addition to exchanging the information required under sub-regulation 1 (on non-performing loans and other negative information), exchange positive information of their customers with Bureaus,” says the newly gazetted regulations.

Kenya Bankers Association (KBA) chief executive officer Habil Olaka, while welcoming the gazettment, said that the mechanism for accessing the information prevents use in underhand tactics for competition.

“The customer whose information the bank is accessing would have to come to the bank in the first place to ask for a facility. The banks won’t access the information at random,” said Mr Olaka.

A bank that is approached by a customer who has an exemplary repayment record would however be more likely inclined to lend them money, or even to buy out a previous loan from a competing bank.

The lenders have in the past kept such positive borrower information closed, only publishing negative information on borrowers as per the requirements of the previous regulations.

The two licensed bureaus in the country, Metropol and American-owned TransUnion, last year started piloting positive information sharing ahead of the gazettment of the rules which are now in place.

Faithful borrowers

CBK in its latest quarterly credit officer survey report (September 2013) noted that 79 per cent of the 43 banking institutions surveyed request credit reports for all credit applications.

Ninety eight per cent indicated they use the Credit Information Sharing (CIS) mechanism to enhance their credit risk management process.

Deposit Taking Microfinance institutions can now also enter into information exchange with the bureaus, given that the new regulations have allowed for this provision, with the written consent of the customers concerned.

CBK noted that the inclusion of DTMs and the sharing of positive information is likely to lead to a revision on the way financial institutions price their loans.

“With regulations encompassing positive information and bringing in DTMs, pricing of credit, building application scorecards and behavioural scoring should become more important.