THE Bangko Sentral ng Pilipinas (BSP) said it will begin work this month compiling a credit risk database (CRD) that will help banks more easily evaluate the creditworthiness of small businesses and wean lenders away from requiring excessive collateral cover.
The project is backed by the Japan International Cooperation Agency and will run until 2023, BSP Governor Benjamin E. Diokno said.
“Actual data collection will start in the third week of November. Orientation about the data collection process is being conducted for the officers of the 18 participating banks,” Mr. Diokno said in a briefing Thursday. Building the CRD framework will run from 2021 to 2022.
Banks have been reluctant to lend to some small-, and medium-sized enterprises (SMEs) due to the dearth of credit data for the sector.
“CRD addresses two key issues on SME financing. First is SMEs’ reluctance to seek bank loans due to lack of credit history or collateral. Second is the banks’ perception that SMEs, in general, are high risk,” Mr. Diokno said.
The BSP hopes to provide banks with tools to assess small firms’ capacity to pay back loans and reduce their dependence on collateral for credit decisions.
“Since it will cover certainly more data points and more SME data than what a single bank can come up with, the CRD model can be more stable and accurate in coming up with in terms of predictive analysis,” said Ellen Joyce L. Suficiencia, director of the BSP’s Center for Learning and Inclusion Advocacy.
Ms. Suficiencia said banks that already have their internal credit scoring tools can use the CRD to validate their own evaluations.
The CRD could also enable the practice of risk-based interest, Ms. Suficiencia said.
“If you’re an SME that’s categorized in the lower probably probability of default group, then you should be able to get better loan terms,” she said.
By the end of the three-year project, the CRD will be turned over to a permanent body, either an industry association, a government agency, or the BSP, Ms. Suficiencia said. The target is to encourage adoption by more banks eventually, expanding funding to SME clients.
The Department of Trade and Industry has estimated that the broader category of micro-, small-, and medium-sized enterprises (MSMEs) accounted for about 99% of the one million registered businesses in 2018.
The sector received loans worth P208.201 billion in the first quarter, or about 2.47% of the banking system’s loans overall. This is much less than the 10% share required by Republic Act. No. 6977 or the Magna Carta for MSMEs.
The central bank has been encouraging banks to extend credit to small businesses during the pandemic crisis via regulatory relief such as allowing MSME loans to count towards reserve compliance. — Luz Wendy T. Noble