Economist Eric Bloch says the setting up of a credit bureau by financial institutions is long overdue and will reduce the vulnerability of banks to risky borrowers.
Last week the Bankers’ Association of Zimbabwe (BAZ) in conjunction with TransUnion, announced they were in the process of setting up the bureau.
The African Development Bank (AFDB) has repeatedly warned that the country’s banking sector remained vulnerable despite favourable profit levels recorded last year, as indicated by the high percentage of demand deposits.
Demand deposits have been averaging 59,6%, a figure considered too high.
Bloch said the establishment of a centralised credit bureau would make it easy for banks to access clients’ information that would help them detect risky and blacklisted clients speedily.
Once blacklisted, creditors will be denied access to loans.
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“It’s a welcome move for Zimbabwe’s finance sector. I don’t recall having that in place before. “Once set up, banks will be less exposed to risky borrowers and clients who borrow from various institutions simultaneously without the ability to repay,” Bloch said.
Bloch added that in countries where the credit bureau was in place, loan default ratio was low as “risky clients were quickly detected”.
According to the AfDB monthly economic review, the loan-to-deposit ratio increased from 82,2% in February 2012 to 83,8% in March.
“A reduction in the loan-to-deposit ratio is still required, given the prevailing non-performing loans.
“Most companies and individuals are already over-borrowed, a situation that can easily result in loan repayment default, should further borrowing take place.
“In this case, there is scope for cautiousness on the part of both borrowers and lenders,” the AfDB warned.
BAZ believes a credit bureau would reduce information asymmetries between borrowers and lenders and allow lenders to more accurately evaluate risks and improve portfolio quality.
However, in South Africa there has been a standoff between banks and creditors with complaints about how credit bureaus violate privacy rights and administrative justice procedures.
Creditors complain that banks compile and share inaccurate information, which result in scores of people being blacklisted and failing to access loans.