Entry to the European Union has reverberated across a number of sectors. However, it has had a limited impact on a phenomenon that has persisted throughout the past few years. Fast expansion in the loans market has seen Bulgarias loan exposure reach the levels of the rest of Europe, a recent report said. Yet it also said that Bulgarians have half the income other Europeans do, which immediately casts doubt on the ability of Bulgarians to repay their loans. In addition, banks portfolios have become too dependent on loans, the average percentage in commercial banks assets being, at about 70 per cent, past the tentative ceiling of 50 per cent. The situation prompted Bulgarian National Bank (BNB) to raise the share of mandatory reserves commercial banks hold with the central bank from eight to 12 per cent as of September this year.
This, however, has hardly served as a deterrent to increasing mortgage loans. Reports circulated over the past week saw the volume of mortgages doubling compared to the past year, with more than 70 per cent of individuals taking out a loan when buying a home. The number of loans of more than 100 000 leva has also reached unprecedented levels.
The situation with consumer loans has been similar.
In view of the persistent and eager surge in the issuing of loans, it is natural to consider the repercussions of the potential default on loan payments. Although not an immediate threat, with the share of bad loans currently at two per cent, calls that the situation is conducive to a dramatic increase at times of recession are growing. As banking experts said, the explanation is simple: whenever borrowers purchasing power goes down, loan repayments are the first thing they slash from their monthly outgoings.
Within this environment the role of public and private authorities that can duly assess the creditworthiness of loan applicants is increasingly important. The International Finance Corporation (IFC) and the World Bank (WB) have recognised the need for the existence of credit bureaus as an essential component of financial infrastructure, the set of financial institutions that allow for the proper functioning of financial intermediaries. Alongside payment systems and collateral registries, credit bureaus have their due place in evaluating, and harnessing, the risk that lenders assume on issuing a loan. As do they limit the probability of fraud.
Though the IFC has not initiated the establishment of a credit bureau in Bulgaria within its credit bureau programme project, it has paid due attention to the existence in Bulgaria of a credit registry at the BNB and a private credit bureau.
The private credit bureau of Experian, a top three loan risk assessor in the US and worldwide, has taken off since its was established two and a half years ago. It has provided lenders with more transparency when taking decisions to issue loans than, say, a year ago. Unlike the BNB loan registry that gives a general account of a borrowers loans, Experian provides a complete and detailed breakdown on each prospective borrower, be it an individual or a commercial entity.
Darina Oresharova, an operations manager at Experian, told The Sofia Echo that the bureau provided detailed information on each loan account, both personal and loan-related. Among data the bureau provided was past payments of loans, days overdue, warrantors and co-borrowers, she said. Experians partnership with a number of related registries allowed members of the bureau to also get access to information available at the Bulstat and the Social Security Institute.
Experian was shortly due to sign partnership agreements with the National Personal Civil Status Database, Oresharova said. The registry contains personal data such as the Unified Civic Number, address and marital status.
The official said that all loan enquiries had been made with the approval of the loan applicants, in conformity with the Law on Protection of Personal Data and the regulations of the Commission for the Protection of Personal Data.
The credit bureau operates on the reciprocity principle, i.e. the level of information the bureau receives from a certain institution equals the degree of information provided to it, Oresharova said.
The organisations participating in the bureau retain ownership of the data and the information is used solely for the purpose of assessing the loan application.
Access to a comprehensive set of data allows the lenders peace of mind and the establishment of a disciplined fiscal environment over all. Hopes are that the credit bureau, alongside those that are set to pose competition to Experian, will serve as the cushion against market turmoil that has recently shaken the global mortgage market.
