Keynote Speech by Mr Teo Ser Luck, Minister of State for Trade and Industry, at Credit Bureau Singapore’s 10th Anniversary Seminar at Raffles City Convention Centre, Friday, 12 October 2012, 8.45am
Distinguished guests
Ladies and gentlemen
Good morning,
Introduction
I am pleased to join you at the 10th anniversary celebrations of Singapore’s first consumer credit bureau – Credit Bureau Singapore, or CBS. CBS was conceived after the Asian Financial Crisis in 2002. In a short span of a decade, it has grown to become the mature credit bureau it is today.
Let me share with you some statistics. With a membership of 28 financial institutions, CBS has built up a repository of consumer credit information in Singapore. Every month, over 1 million credit reports are generated for financial institutions. About 11,000 credit reports are dispensed to consumers, and 1.65 million consumers’ credit payment data – from credit cards, housing and motor vehicle loans to overdrafts and unsecured personal loans – are handled by CBS.
I would like to take this opportunity to congratulate CBS on successfully operating the credit bureau for the last 10 years.
The Role of a Credit Bureau
There are several key participants in a credit bureau. They include the credit bureau operator, bureau members who contribute data, and consumers. Each plays an important role to ensure that the credit bureau functions effectively to help consumer credit markets work well for both lenders and consumers. First, the credit bureau operator collects and produces reports containing information on the consumer’s credit history, such as the timeliness of loan repayment and sources of debt. Second, lenders who are members of the bureau, contribute consumer credit data to the bureau. In considering a loan to a consumer, they may use information in the credit report from the credit bureau as one of the input for their risk assessment. Third, consumers will be encouraged to manage their financial affairs well as they understand that their borrowing and repayment habits can affect their credit reports and in turn may affect their ability to obtain loans. They should keep good credit records by paying their dues on time.
Credit bureaus are undoubtedly an essential part of a developed country’s financial infrastructure. Studies by the World Bank have shown that good financial infrastructure plays an important role in financial development and stability, by providing an efficient mechanism for evaluating risk and return to investment, and then managing and allocating risk and resources across the economy.
According to McKinsey&Company, credit bureaus boost a country’s financial infrastructure in three respects. First, they increase access to credit. This is because credit bureaus help to correct what is known as information asymmetry, allowing lenders to share and collect data on potential borrowers. The exchange of data on the creditworthiness of individuals allows lenders to identify good borrowers, and reap cost savings through more efficient and accurate credit analysis. For borrowers, credit bureaus aid in building reputational collateral and greater bargaining power for the terms of credit.
Second, credit bureaus support responsible lending and reduce credit losses. Default ratios could be reduced as visible credit histories permit the appropriate lending activity. For instance, lenders can identify clients with good credit profiles and potentially increase lending offers, and avoid clients that may be unable to repay. Credit bureaus could also promote responsible borrowing, for example when borrowers know their credit information is shared, there is an extra incentive to pay to avoid staining their credit reputation.
Third, credit bureaus strengthen surveillance, as credit bureau-collected data can be a useful source of information for monitoring the level of consumer indebtedness.
It is therefore vital that consumer data be accurate and kept confidential. In this regard, I am glad that CBS and its members have been paying close attention to safeguard data confidentiality and ensuring accuracy of data.
How Credit Bureaus Help Businesses and Consumers
In terms of getting credit, Singapore is ranked eighth in the world – on par with the likes of Australia, Ireland and Israel, according to a World Bank Study, “Doing Business 2012”. Since 2004, Singapore has also improved its score in the Depth of Credit Information index, one of the two indicators of the ranking. The Depth of Credit Information index measures the coverage, scope and accessibility of credit information available through public credit registries and private credit bureaus.
The establishment of credit bureaus has also enhanced the Singapore consumer’s awareness of the importance of maintaining a good credit status. Singaporeans are now more credit-savvy, and understand that their credit report is an indication of their financial health, thanks to consumer education initiatives such as the series of public education talks CBS holds with partners such as Credit Counselling Singapore, Consumers Association of Singapore and other agencies on an ongoing basis.
While I commend CBS for educating the public on the importance of good credit management, I encourage CBS and other credit bureaus to reach out to more consumers on responsible borrowing. Credit bureaus could more actively collaborate with relevant partners and engage a wider audience through more channels, like the media and public guides.
An area that threatens the financial system is fraudulent activity, such as identity theft, which although currently not a serious problem in Singapore, might escalate as the retail credit market grows, based on the experience of advanced credit economies such as the UK and US. I have been told that CBS is thus working on improving fraud detection and curtailing identity theft, via a new service that will send an SMS alert to consumers when a credit application is made in their name or when a payment is missed on their account. I hope that Singapore’s credit bureaus could continue rolling out more value-added and innovative products and services for consumers in the near future. Such efforts will, in the long run, enhance Singapore’s reputation as an Asian financial hub and as a good, stable place to do business.
Conclusion
A strong credit bureau is essential as it contributes to a country’s financial infrastructure and overall economic growth. Thus, I encourage our credit bureaus to continue providing quality products and services to consumers and to increase efforts in public education on responsible borrowing.
On this note, I wish you all a fruitful morning.