18.12.2015, 07:46
Fitch: China's Credit Bureau Important for Consumer Finance Development
OREANDA-NEWS. China's credit bureau system has expanded rapidly along with the economy to become the largest in the world, but it still has some way to go compared with credit bureaus in western countries, Fitch Ratings says. The development of the credit bureau system will facilitate further expansion of commercial and consumer credit in China.
The Credit Reference Center of the People's Bank of China (CCRC) ranks as the world's largest credit database, with over 20 million business records and over 850 million individual records. However, that covers credit profiles for only a quarter of China's population and has a history of less than 10 years, which coincided with a period of rapid economic growth.
In spite of the shortcomings, the CCRC has become indispensable to lenders in China. All the parties involved in asset-backed and residential mortgage-backed securitisation ratings in China use the CCRC as part of the underwriting process, based on Fitch's discussions with them. Fitch believes the growth of this data source, and its effective use by lenders, will be vital to the future maturity of the consumer and commercial finance sector in China. The increasing awareness of credit records could also change consumer behaviour and help build a virtuous cycle for credit expansion.
CCRC is reportedly developing credit scores, but these have not yet been published. Fitch believes a national credit score will help securitisation investors to compare asset quality between different asset classes or different pools within the same asset class.
Many countries' experiences have proved the creation of a credit bureau is instrumental to the development of a credit market as it reduces asymmetric information risk and helps creditors better assess borrowers' creditworthiness. Bad borrowers can be weeded out in the loan application process, and high-risk customers can be identified and monitored in servicing and collection. Credit availability will be enhanced when banks can quantify and price credit risks.
CCRC's number of business obligors with a credit history increased from 5 million at end-2006 to 10 million at end-2014, and consumer obligors with a credit history increased from 170 million to 350 million. CCRC also contains basic information for businesses and individuals without credit activity. Despite the dramatic growth in use of credit, the non-performing-loan ratios across Chinese banks declined over the same period, partly due to the creation of a centralised credit system.
Credit information is primarily provided to CCRC by commercial banks, and the records are mostly updated on a daily basis. Non-bank institutions, such as trusts, finance firms, leasing companies, asset management firms, insurance firms and auto finance companies, also feed information to CCRC. Information from peer-to-peer platforms and corporate debt market is not yet incorporated into the system.
CCRC collects non-traditional credit information, such as utility payment, telecommunications payment and salary arrears, as well as traditional loan disbursement and payment information. Public records like tax arrears records, court records, and administrative licensing records are also available. The records include positive information like on-time payment data as well as negative bankruptcy, defaults and delinquent records, which will stay on file for five years.
The Credit Reference Center of the People's Bank of China (CCRC) ranks as the world's largest credit database, with over 20 million business records and over 850 million individual records. However, that covers credit profiles for only a quarter of China's population and has a history of less than 10 years, which coincided with a period of rapid economic growth.
In spite of the shortcomings, the CCRC has become indispensable to lenders in China. All the parties involved in asset-backed and residential mortgage-backed securitisation ratings in China use the CCRC as part of the underwriting process, based on Fitch's discussions with them. Fitch believes the growth of this data source, and its effective use by lenders, will be vital to the future maturity of the consumer and commercial finance sector in China. The increasing awareness of credit records could also change consumer behaviour and help build a virtuous cycle for credit expansion.
CCRC is reportedly developing credit scores, but these have not yet been published. Fitch believes a national credit score will help securitisation investors to compare asset quality between different asset classes or different pools within the same asset class.
Many countries' experiences have proved the creation of a credit bureau is instrumental to the development of a credit market as it reduces asymmetric information risk and helps creditors better assess borrowers' creditworthiness. Bad borrowers can be weeded out in the loan application process, and high-risk customers can be identified and monitored in servicing and collection. Credit availability will be enhanced when banks can quantify and price credit risks.
CCRC's number of business obligors with a credit history increased from 5 million at end-2006 to 10 million at end-2014, and consumer obligors with a credit history increased from 170 million to 350 million. CCRC also contains basic information for businesses and individuals without credit activity. Despite the dramatic growth in use of credit, the non-performing-loan ratios across Chinese banks declined over the same period, partly due to the creation of a centralised credit system.
Credit information is primarily provided to CCRC by commercial banks, and the records are mostly updated on a daily basis. Non-bank institutions, such as trusts, finance firms, leasing companies, asset management firms, insurance firms and auto finance companies, also feed information to CCRC. Information from peer-to-peer platforms and corporate debt market is not yet incorporated into the system.
CCRC collects non-traditional credit information, such as utility payment, telecommunications payment and salary arrears, as well as traditional loan disbursement and payment information. Public records like tax arrears records, court records, and administrative licensing records are also available. The records include positive information like on-time payment data as well as negative bankruptcy, defaults and delinquent records, which will stay on file for five years.
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