Why bankers care about consumer privacy now
biz.scmp.com
Wednesday, August 14, 2002
Credit where it's due
LOUIS BECKERLING
There is a rich irony to the anxiety that besets Hong Kong bankers and threatens to derail, or at least divert, their long campaign to put a "positive credit bureau" into place.
Concerns from privacy lobbyists - the most fearful of whom see an Orwellian menace in maintaining such a centralised database of personal bank accounts - were first countered by bankers with stories of what lay in store if they did not get their hands on such a loan watch list.
"Deserving borrowers could be denied credit . . . soaring bad loans could ultimately destabilise the banking system . . . the entire economy could be dragged into decline by a credit crunch . . ." was how some of the arguments ran.
But in a wry twist to the tale uncovered by the South China Morning Post, bankers - trapped like Conrad's Kurtz in their own heart of darkness - have become alarmed by what may happen if they do get untrammelled access to a sea of bad loan data.
In a remarkable turnaround, what is now under discussion, we reliably understand, is a proposal to write an agreement into the Code of Banking Practice which will keep the lid on much of the loan data during a moratorium likely to run for anywhere from six months to a year.
Consensus must yet be secured, it is understood. But the idea of putting a hold on open access to the information enjoys the support of a majority of lenders.
In its place it is proposed that access may be granted only to a credit provider who has been approached for a loan by a genuinely new customer - and wants to query the number and size of loans already owed to other lenders by the applicant.
Forbidden, during the moratorium now contemplated, would be any general mining of data by lenders reviewing the gearing levels of their existing customers. This is allowed in the case of the existing "negative" credit bureau which keeps a track of all loan defaulters - and was the main objective of setting up the new "positive" data base.
However, during the grace period now envisaged, the supporters of the moratorium hope that the economy will improve, unemployment will turn around, wage freezes will be lifted, and the repayment burden on borrowers will ease.
The horror they fear finding if this is not agreed to, is a vast number of borrowers in hock up to the hilt and barely able to keep up their loan repayments. In those circumstances the first unsecured lenders to take fright and call in loans, the argument runs, could trigger a chain reaction of defaults and send already high bankruptcy rates spiralling out of control.
"[The proposed positive credit bureau] has become a Pandora's Box," was the way a banker explained it.
Before the latest somersault in their thinking, most bankers had argued that Hong Kong needed to expand the existing "black-list" of loan defaulters already kept for them by Credit Information Systems (CIS), to include a "white-list" of personal loans in perfectly good standing.
Not surprisingly, smaller banks with the most to gain from dipping into a collective pool of account information, were the most vigorous supporters of the proposal. Hong Kong's banking behemoth HSBC - which already has customer information for about 75 per cent of bankable Hong Kongers, was dragged reluctantly to consensus.
After all, it would be effectively handing the SAR's banking minnows the competitive advantage that it enjoyed from being able to mine its own unrivalled customer data-base for credit information and generate consequently superior credit-scoring systems.
The Hong Kong Monetary Authority was eager to see a positive data bureau added to the armoury of prudential safeguards in the SAR's financial system.
Banks needed the additional data, the argument ran, to discover how much money individuals already owed to other lenders (mortgages excluded), so that they could make prudent decisions about whether to grant them additional loans, or extend existing loans.
Borrowers found in good standing could benefit, they said, from lower rates of interest which would be offered as lures to keep good customers on their books.
There is nothing particularly new to the last argument.
Several positive credit bureaus operate in the US, for instance, and one of the biggest - TransUnion - has become a shareholder in Hong Kong's CIS. TransUnion counters privacy campaigners and critics of its super-snooping function by pointing out that intelligence gathering on loan data actually helps consumers.
"Consumers trust TransUnion to provide businesses with an accurate, unbiased picture of their financial capabilities," it says. "Because of readily available credit histories, consumers are able to pursue otherwise unavailable opportunities and receive better, more competitive options.
"In fact, many consumers obtain their own TransUnion Credit Report and score before applying for credit; with their TransUnion Credit Report in hand, consumers can approach potential creditors from a position of knowledge and confidence."
Adding another dimension to the drive by Hong Kong's bankers to set up a similar database in the SAR, has been the explosion of bankruptcy orders triggered by a slowing economy and rising unemployment. And also, add bankers, by outright fraud.
The number of bankruptcy orders granted in the first half of this year almost doubled to 10,173 and led to a 160 per cent rise in the total number of delinquent loan accounts reported by banks to 275,196.
That amounted to a total of HK$5.5 billion in loans likely to remain unpaid by delinquent borrowers as at the end of June and the bad loan bag was swelling fast.
The interim results' season about to end has shown just how badly bank credit card portfolios have been affected by the bankruptcies.
Standard Chartered, which claims to be the biggest issuer of cards in the SAR since its acquisition of Manhattan Card from Chase, would not disclose just how much of its credit card portfolio was now being lost as loans turned bad.
However, extrapolating from such data as it did provide indicated that it was expecting anywhere between 15 and 20 per cent of its credit card loans to be in default this year. At that level, say bank analysts, it is on the brink of losing money on its credit cards.
Clearly Standard Chartered would have much to gain from mining a new "positive" data base, while HSBC has little to gain.
So guess who wants to see the evil day put back for as long as possible? And who wants to get their hands on the data as quickly as they can? |
