Hanoi. 11 January 2006 — Leading bankers were told today that the establishment of a private credit bureau in Vietnam could contribute significantly to economic growth. This was the key message in a half-day consultation which the State Bank of Vietnam, the Mekong Private Sector Development Facility and VISA International organized to get bankers’ feedback on plans for establishing a private credit bureau.
More than 100 bankers attended the seminar. Presentations included: how a private credit bureau would complement Vietnam’s existing public credit registry (the Credit Information Center); the status of private credit bureaus in the region; how a private credit bureau would operate in Vietnam; the value-added services it could provide to banks; and the legal and technical issues that must be addressed, including data accuracy and privacy. Presenters and panelists included experts from the International Finance Corporation’s Global Private Credit Bureau Program, VISA International, Vietnam’s Credit Information Center, banks and international credit bureau operators.
In the seminar’s opening speech, Adam Sack, General Manager of IFC-MPDF, which is a multi-donor initiative of the International Finance Corporation, explained how a private credit bureau could stimulate the growth of private enterprise.
“A private credit bureau could significantly benefit banks, borrowers and ultimately Vietnam’s economy. Banks would benefit because a private credit bureau would warn them of borrowers who are already heavily in debt and/or have a poor credit history. This could appreciably reduce banks’ risk in lending and their losses from bad loans. As far as borrowers are concerned, experience in other countries shows that once banks begin to trust the services of a credit bureau, they will give borrowers with a good credit history better interest rates, and loans with less or no collateral.”
According to a World Bank survey of over 5,000 businesses conducted worldwide in 2003 the establishment of a credit bureau resulted in the percentage of small firms reporting financial constraints dropping from 49% to 27%, and the probability of SMEs accessing credit rising from 28% to 40%.
Most importantly, stated Mr. Sack, a private credit bureau could significantly benefit Vietnam’s economy. “Right now small and medium enterprises, which are, and will continue to be, the driving force of Vietnam’s economic growth, find it difficult to borrow the longer-term funds they need to upgrade equipment and expand because they lack sufficient collateral. Consequently, smaller companies grow slowly and fail to realize their potential in creating more jobs, paying more taxes and contributing to better living standards. Start up companies and individuals without collateral find it even more difficult to borrow.”
According to Doing Business 2005, the World Bank Group’s annual report card that compares the quality of the business environment in over 150 countries around the world, establishing a private credit reporting system is one of three key reforms Vietnam should undertake.
Vietnam’s existing public credit registry collects information on the larger borrowings from banks, but does not have the resources to cover smaller SME or consumer loans and other credit providers such as utilities, insurance companies etc. Under Vietnam’s public registry only 1.1% of adults are covered, whereas in Thailand, where private credit bureaus have operated since 2002, 18.4% of adults are covered. In Australia, where private credit bureaus have operated for many years, the coverage is 100%.
