Transcript Promoting Credit Reporting Standards in APEC

Asia-Pacific
Credit Coalition
Lessons for Information Sharing
Standards in APEC
By Marlena Hurley, TransUnion CRIF
Presentation for
The Advisory Group on APEC Financial System Capacity-Building of
Asia-Pacific of the APEC Business Advisory Council
Moscow
6 May 2008
About APCC

The Asia Pacific Credit Coalition is



A coalition committed to promoting credit reporting standards within APEC.
An affiliate organization of the non-profit Political and Economic Research Council (PERC).
Mission


To development and promote the adoption of sound information sharing and credit reporting
standards in the APEC region.
To develop and demonstrate standards that are based upon proven principles and solid evidence.

In that APEC is the largest, economic region, the diffusion of standards to member
economies key is a step in economic development for hundreds of millions.

In pursuit of goal, APCC
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Hosts educational seminars with national regulators and policy makers.
Reaches out to APEC staff
Engages press and media briefings
Develops Country-specific and regional economic impact analyses
Provides Industry executive briefings and outreach
2
The issues on the eve of
credit reporting reform

What information should be reported?

Which sectors should be encouraged to report?

How is the size and distribution of lending
affected?

What forms of registry ownership work best?
3
Common findings
Full-file (positive and negative payment)
and comprehensive (across many sectors)
reporting:
 increases lending to the private sector

especially among lower social segments more
than other reporting regimes; and,
results in better loan performance than
segmented and negative-only reporting;
 private bureaus with comprehensive data
increase lending to the private sector.
4
Effects of full-file & comprehensive
reporting on access to credit
Acceptance Rates by Targeted Performance
Level (U.S. Files)
Target
Full -file,
default
comprehensive
Negative-only
rate (%)
reporting (%)
reporting (%)
2%
41.9%
28.5%
3
49.2
40.0
4
55.6
47.2
5
60.4
55.5
6
63.7
60.4
7
66.4
64.1
Source: M ichael Turner et al., The Fair Credit Reporting Act:
Access, Efficiency, and Opportunity (Washington, DC: The
National Chamber Foundation, June 2003).
Acceptance Rates by Targeted
Performance Level (Colombian Data,
Includes non-financials)
Target
default
Full -file,
Negative-only
rate
reporting
reporting
3%
10.00%
2.56%
5
41.35
5.15
7
58.82
13.60
10
73.06
54.97
12
77.80
72.26
Source: Michael Turner and Robin Varghese, The
Economic Impacts of Payment Reporting in Latin
America (Chapel Hill, NC: Political and Economic
Research Council, May 2007), Table 5.
Acceptance Rates by Targeted
Performance Level (Brazil Data)
Target
Full -file
Negative-only
default
model (%)
model (%)
rate (%)
2%
65.08%
49.20%
3
82.27
55.84
4
91.53
84.81
5
96.23
94.36
Source: Giovanni Majnoni, Margaret Miller,
Nataliya Myle nko and Andrew Powell,
“Improving Credit Information, Bank Regulation
and Supervision.” World Ba nk (November 2004).
Effects of Sector Segmentation
(Canadian Data)
Target
default
Full -file
Non-bank-only
rate
model
model
0.5%
47.81%
31.32%
1
70.90
62.70
2
86.34
79.34
3
92.38
83.29
Source: M ichael Turner, Robin Varghese, and Patrick
Walker, On The Impact of Credit Payment Reporting
on the Finance Sector and Overall Economic
Performance in Japan (Chapel Hill, NC: Informatio n
Policy Institute, March 2007), Table 5.
Results of simulations
using real credit files
4 economies, and
10,000s to millions of
files each study
 Produced consistent
results (greater credit
access to a loan
portfolio performance
target)

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

approximately
additional 10% gain
access
much more in other
cases
Consistent with
statistical tests that use
country level
observations
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Distributional consequences of
full-file vs. negative only
Effects on Acceptance Rates for a 3 Percent Targeted Default Rate between
Full-file Reporting and Negative-only Reporting, by Demographic
Characteristics (US Data)
Negative-only
(index = 100)
Full-file
(index = 100)
Race-Ethnicity
121.8
100
Caucasian, Non-Hispanic
127.9
100
African American
136.8
100
Latinos
135.5
100
All Minority
Gender
121.8
100
Female
123.0
100
Male
Age
147.1
100
<36
121.8
100
36-45
121.2
100
46-55
119.8
100
56-65
117.9
100
66-75
119.9
100
76+
Household Income (US$)
135.9
100
< 15,000
129.7
100
15,000 -29,000
124.2
100
30,000 -49,000
120.6
100
50,000 -99,000
117.8
100
>100,000
Source: Michael Turner et al., The Fair Credit Reporting Act: Access, Efficiency, and Opportunity
(Washington, DC: The National Chamber Foundation, June 2003) .
Results on demography
using real credit files
 disadvantaged
social segment
gain greater access than others
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racial-ethnic minorities
young
low-income groups
 Colombian


simulations
under negative-only, 33% of
acceptances women
under full-file, 47% are women
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Consequences of full-file vs.
negative-only for performance
Percentage Point Change in the Default Rate in Switch from Full file to Negative-Only (percentage change shown in parentheses)
Acceptance
Rate
Barron and
Staten,
using U.S.
files
Turner et
al., using
U.S. files
20%
30%
40%
1.84
(170%)
50%
60%
1.45
(76%)
70%
75%
0.8
(62%)
0.6
(33%)
0.3
(10%)
0.4
(8%)
0
(0%)
Majnoni et
al., using
Argentinean
files
Majnoni
et al.,
using
Brazilian
files
0
(0%)
0
(0%)
 default
rates climb as information
moves from full-file to negativeonly in all cases

0.92
(60%)
1.48
(114%)

good risks are confused for bad
ones
bad risks confused for good ones
 Data
0.83
(28%)
1.53
(83%)
0.96
(19%)
0
(0%)
0.86
(30%)
0
(0%)
1.03
(34%)
80%
100%
Turner and
Varghese,
using
Colombian
files (includes
non-financial
trade lines)
4.94
(140%)
4.94
(120%)
8.96
(183%)
8.54
(146%)
8.1
(113%)
Results on loan portfolio
performance
Sour ce: John M. Bar r onand Michael Staten, “The Value of Compr ehensive Cr edit Reports: Lessons fr om the U.S.
Ex per ience,” in Mar gar te M. Miller ed., Credit Reporting Sys tems and the In tern ationalEcon omy¸ 273-310 (Cambr idge,
MA: MIT Pr ess. 2003). Michael Tur ner et al., The Fair Credit Reportin g Act: Acces s , Efficiency, and Opportun ity
(Washington, DC: The National Chamber Foundation, June 2003). Michael Tur ner and Robin Var ghese, The Econ omic
Impacts of Paymen t Reportin g in Latin America (Chapel Hill, NC: Political and Economic Resear ch Council, May 2007).
Giovanni Majnoni, Mar gar et Miller , Nataliya Mylenko, and Andr ew Powell , “Impr oving Cr edit Infor mation, Bank
Regula tion and Super vision.” Wor ld Bank Policy Resear ch Wor king Paper Series, No. 3443 (Washington, DC: Wor ld Bank,
November 2004).


sharing
improves quality of information for
risk provisioning, allowed under
Basel II
Associated with lower defaults,
smaller capital requirements, and
lower credit constraints
7
Macroeconomic and macrosocial:
growth and equality
Comprehensive reporting promotes economic growth by
enabling an increase in lending to the private sector by as
much as 45% of GDP.

Statistical tests show that an increase in private sector
lending by 30% of GDP can yield:
o
o

o
an increase in GDP growth rates of 1%;
an increase in productivity growth of 0.75%; and
an increase in capital stock growth of 0.75%.
An increase in private sector claims by 50% of GDP:
o
o
o
lowers the growth of the Gini coefficient (an inequality measure)
by at least 0.25%, and more by some estimates.
lowers the growth of the percentage of the population living
under $1 per day by 2%, and more by some estimates.
increases the growth of the lowest (poorest) quintile’s income
share by at least 0.45%, and more by some estimates.
Source: Ross Levine, “Financial Development and Economic Growth: Views and Agenda” Journal of Economic
Literature, Vol. 25(June 1997), pp. 688–726; Thorsten Beck, Asli Demirguc-Kunt and Ross Levine, “Finance,
Inequality and the Poor.”
www.econ.brown.edu/fac/Ross_Levine/Publication/Forthcoming/Forth_3RL_Fin%20Inequalily%20Poverty.pdf.
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What you can do
Much work remains to be done, and help
is needed. If you are interested you can:
o
Assist in the formulation of standards for APEC, by
helping APCC to take local concerns into account;
o
Participate in local and country area outreach
efforts, sharing experiences of best practices and
methods of engaging press and policymakers; and,
o
Join APCC coalition to may it wider, broader, and
more multi-national.
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For more information, contact
Dr. Michael Turner
Asia-Pacific Credit Coalition
100 Europa Drive, Suite 403
Chapel Hill, NC 27517
www.apeccredit.org
Phone: +1 919 338 2798 ext. 802