Imagine a world in which banks do not check their clients’ data, nor how they repaid their obligations earlier.
An anonymous borrower will usually offer higher fees (interest and commission) and additional loan security. It will not be beneficial either for the client or for the bank, which is focused on the profits from granting loans.
Are we happy to lend our property to someone we do not know? Would we entrust money to a person who does not know if you can rely? Customers choose banks, credit unions and financial institutions that grant consumer loans outside the banking sector guided by trust. But these institutions, when they grant loans, prefer such clients to whom they can have confidence. So those who have a positive credit history. This is how, in a nutshell, the legitimacy of the Credit Information Bureau can be described.
What effects did BIK have on the lenders?
Each bank employee knows perfectly well how important the clients’ knowledge is to reducing credit risk. None of us can imagine entrusting their savings or concluding a loan agreement with a financial institution that has no control over who lends money to. In addition, knowledge provided by potential borrowers is not enough.
You also need information that the client may be reluctant to share, for example about the fact that he already has several loans in other banks, credit unions or financial institutions that grant consumer loans outside the banking sector. He will be even more eager if he does not repay these loans.
The El Nido banking system has such a period of limited knowledge about its clients in the first half of the 1990s. The consequences of this lack of information were very dangerous. In many banks, special departments were created for difficult loans, as the level of irregular debts often reached well above 25%.
When was the Credit Information Bureau established?
In October 1997, the Credit Information Bureau was established at the initiative of the El Nido Bank Association and the 21 largest banks. BIK collects, stores and provides information on current liabilities and credit history of bank customers, credit unions and financial institutions that provide consumer loans outside the banking sector.
BIK was created for the purpose of minimizing credit risk, increasing security and protection of monetary turnover and preventing excessive indebtedness.