Global Financial Development Report (GFDR) Seminar
Credit Reporting: What Role for the State?
Miriam Bruhn (DECFP), Subika Farazi (FPDCE) Martin Kanz (FPDCE)
1
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Introduction • Why credit information matters – Why share credit information? (i) Risk-management and prudential regulation asymmetric information (ii) Promotion of credit discipline moral hazard • Credit information and the crisis – New focus on credit information sharing for risk-management and prudential regulation – Need for comprehensive credit reporting. Identify barriers to the entry of smaller players, non-regulated financial institutions (important rapid growth of consumer finance in emerging markets) 2
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Introduction • Evidence on the real effects of credit reporting • Reduced default risk, lower interest rates (Padilla and Pagano, 2000) • Improved financial access (Galindo and Micco, 2010, Brown et al., 2009, Love and Mylenko, 2003, and Galindo and Schiantarelli, 2003) • Improved stability of banking sector (Houston et al., 2010, Simovic, 2009) especially important in rapidly growing consumer finance markets • Credit reporting and financial access • Reputational collateral for marginal borrowers (Miller, 2003) • Inclusion of non-regulated lenders (NBFIs, MFIs)
3
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Introduction • Today How is the performance of credit reporting institutions affected by the degree of competition and concentration in the banking sector?
• Policy implications: what role for the state? – Transparency in credit reporting is closely linked to bank structure – The state can play a useful role overcoming market failures and coordination problems arising from bank concentration – Smart regulation needs to provide incentives for transparency where the market does not provide them (increasing social returns to scale) -- Where registries and bureaus coexist their roles should be distinct and nonoverlapping to realize economies of scale to avoid crowding out -- Support extension of credit reporting to non-regulated institutions, lower bar -- Set and monitor standards for the type and quality of information provided 4
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Roadmap 1.
Introduction -Why credit information matters
2.
The challenge of building transparent credit reporting systems -When and why the market may not do it -Bank concentration and credit reporting -What role for governments in credit reporting?
3.
Empirical overview - The nature and reach of credit reporting systems
- Bank concentration and credit reporting 4.
New Evidence
5.
Policy implications 5
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Problems in credit information sharing • Monopoly rents in the market for credit information – Banks (especially large banks) can capture monopoly rents and prevent entry by not sharing information – Increasing social returns of credit information sharing (Japelli and Pagano, 1993, 2002) – …but decreasing private returns of credit information sharing – Coordination problems in information sharing among private lenders • Implications – Mere existence of credit reporting institutions may not be enough; underlying bank concentration matters (closed user groups etc) – Especially important barrier for the extension of credit reporting to non-regulated/nontraditional lenders such as MFIs and NBFCs 6
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
The role of the state
The role of the state
•
What role for the state? – Public good character of credit information sharing may justify involvement of the state
•
Role of the state (i) Regulator (ii) Promoter (iii) Operator of credit information systems
•
What should be the objective? – Fix market failures (coordination problems among private lenders) – Realize economies of scale where the market does not provide the right incentives (lower barriers of entry for smaller players NBFCs, MFIs) – Set data quality and reporting standards 7
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Bank concentration and credit reporting • How does bank concentration affect credit reporting? (i) Emergence of credit reporting institutions (ii) Institutional participation in credit reporting (iii) Extent of information collected and distributed Countries with low bank concentration
Countries with high bank concentration
Credit Registry?
.56
.37
Credit Bureau?
.80
.39
Credit bureau or registry?
.92
.53
• Can state involvement help? • Are there complementarities between public and private credit reporting? 8
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Institutional Participation in Credit Reporting Credit Reporting Institutions
Credit bureau
A SS
SA
EC D O
M EN A
LA C
EC A
EA
P
0
20
40
60
80
by Type and Region
Credit registry
• Large variation in type of credit reporting institutions across regions • Legal origin and credit institutions: Anglo-Saxon countries typically stronger creditor rights, less state involvement 9
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Institutional Participation in Credit Reporting Total Credit Listed
Credit listed in largest bureau
SS A
SA
EC D O
EN A M
LA C
EC A
EA
P
0
20
40
60
80
100
as % of GDP
Credit listed in credit registry
• Different ways of measuring the coverage of the credit reporting system • Financial stability: volume of credit listed • Financial access: number of individuals covered 10
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Institutional Participation in Credit Reporting
Who Provides Information to Credit Bureaus?
Who Provides Information to Credit Registries? EAP
EAP
ECA
ECA
LAC
LAC
MENA
MENA
OECD
OECD
SA
SA
SSA
SSA
Banks
NBFCs
MFIs
Banks
NBFCs
MFIs
Functional Differentiation • Private bureaus collect more information from non-bank/non-regulated lenders • Potential limitations of registry for risk-management in emerging markets with large NBFI share • Strong case for private bureau if target is incorporation of MFIs, NBFIs 11
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Depth of Credit Information
Information Collected
Information Collected
Credit Registries
Credit Bureaus
EAP
EAP
ECA
ECA
LAC
LAC
MENA
MENA
OECD
OECD
SA
SA
SSA
SSA
Personal
Loan
Repayment
Personal
Loan
Repayment
It’s not just ownership that matters… • Variation in the type and quality of information collected • Bureaus do more active monitoring… • …and collect more repayment information 12
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Bank concentration and credit reporting Participation in Credit Reporting .6
BRA CRI
Residual, participation index .2 .4 -.2 0
COL
CHL
PAR MYS
MEX DOM ECU GBR BOL NIC BIH
URY HND RUS
GTM PAN
TTO AUS
EST
GEO RWA
EGY CAN THA MAR
IND
PNG
NPLGER KENPAK HUN ESP UGA
ARE
BGR ISR SLV LKA
LTU CHE
ISL
PHL
BHR KGZ SIN MAC
IRN
TUR
KOR
UKRSAU SDN BGD IDN IRL HRV HKG PER LVA
NGA
JPN
ARM
DEN ITA AUT POL ROM CZE
TUN
SVN
LEB BHS
-.4
SWZ BWA
ZMB
ARG
.25
ZAF
KAZ
SLE FIN NER BDI ETH TCD BFA MDG MLI GHA MRT MDVYEM BEN NLD LSO MNG SEN CMR AGO AZE CIV COR ALB BLR KWT CPV SVKALG SWE GUY GAB JPN CHN BLZ MRU LBY BRB ANU QAT CYP PRT NOR
.5
.75
1
Bank concentration b= -.48, R2=.12
13
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Bank concentration and credit reporting Information Collected .6
ZMB
MAR
Residual, information collected .2 .4 -.2 0
COL BRA
GBR NIC ARE
RUS GTM PAN JPN IND
HND
KEN
KAZ
UGA GEO
CRI EGY
LKA TTOARM BHR BGR SLV MAC
NPL ECU KGZ BIH BOL KWT SAUHRV ITA MYS POL TUR GER DOM ROM SVK AUT CZE MEX THA
CHL
UKR
PHL ZAF SIN
CHE
RWA SWZ BWA
PAK HUN
AUS FIN
URY
CYP NLD
ESP KOR
BGD SDN
NGA PAR TUN
LEB
LVA HKG
-.4
BHS
.25
IRN
PNG EST
CAN
ARG
LTU
IDN PER SVN IRL
BDI GHA ETH SLE NER TCD MLI BFA DEN MDG BEN MDV LSO MRT SEN CMR CHN MNG YEM CIV AZE AGO GUY CPV COR JPN ALB BLR ALG ISR BLZ MRU GAB PRT ANU LBY BRB ISL SWE NOR QAT
.5
.75
1
Bank concentration b= -.47, R2=.10
14
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Bank concentration and credit reporting Information Distributed .6
KAZ UGA GEO COL
Residual, information distributed -.2 0 .2 .4
ARM
CRI KEN ZMB
MAR EGY GBRNIC
RUS BRA
LKA TTO SLV BGR
ECU ARE
GTM
NPL BOL DOM SAUHRV
PAN JPN
GER POL ROM CZE MEX AUT
THA IND
PAK UKR
URY
CHE
BGD SDN LVA HKG
BWA SWZ PNG
IDN PER SVN IRL
EST
CYP BDI GHA ETH NLD SLE FIN NER TCD MLI BFA MDG BEN MDV LSO DEN CHN MRT SEN CMR MNG YEM CIV AZE AGO GUY CPV COR ALB JPN PHL BLRALG ISR BLZ MRU GAB PRT ANU LBY BRB ISL NOR QAT SWE
-.4
BHS
AUS
HUN
ESP KOR NGA PAR TUN LEB
SIN
RWA
HND
ARG
IRN
ZAF SVK TUR
CAN
CHL
LTU
KGZ KWTITA
BIH MYS
BHR MAC
.25
.5
.75
1
Bank concentration b= -.48, R2=.12
15
Introduction
Roadmap
Background
Evidence: Bank Concentration and Credit Reporting
Policy Implications
Bank concentration and the emergence of credit reporting Pr[Credit Registry]=1
Probit Bank concentration Per capita GDP Private Credit/GDP
Probit
Probit
Probit
Probit
Probit
Probit
-0.204
-0.191
0.076
-0.547**
-0.502**
-0.457**
-0.529***
(0.220)
(0.230)
(0.275)
(0.299)
(0.226)
(0.233)
(0.203)
(0.200)
-0.041
-0.030
-0.018
-0.053
0.037
0.044
0.070**
0.088**
(0.037)
(0.037)
(0.040)
(0.053)
(0.033)
(0.032)
(0.034)
(0.038)
-0.003*
-0.002*
-0.002
-0.002
0.002*
0.002
0.002
0.001
(0.001)
(0.001)
(0.001)
(0.002)
(0.001)
(0.001)
(0.002)
(0.002)
0.131
0.152
0.027
-0.076
-0.104
-0.175
(0.106)
(0.118)
(0.133)
(0.093)
(0.096)
(0.111)
Creditor rights
-0.042
0.044
0.025
0.012
(0.042)
(0.053)
(0.036)
(0.041)
French legal origin German legal origin Transition legal origin
R-squared
Probit
-0.312
Contract enforcement
Number of observations
Pr[Credit Bureau]=1
0.601***
-0.211**
(0.098)
(0.106)
0.348***
-0.331
(0.079)
(0.211)
0.036
-0.396*
(0.193)
(0.234)
135
132
115
111
135
132
115
111
0.070
0.072
0.072
0.281
0.139
0.141
0.249
0.286
Note: *** p
