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In early March, the law "On Amending Certain Laws of Ukraine on Establishing and Maintaining the National Bank Credit Registry and Improving Credit Risk Management Processes of Banks" came into force. This law was adopted on February 6 by the Verkhovna Rada with a minimum number of votes - 226. On March 1, the document was signed by President Poroshenko. For the actual functioning of the register, the National Bank has already developed a draft law, which regulates its operation.
It should be noted that the introduction of the National Bank credit registry, given the significant number of problem portfolios, was one of the requirements of the IMF, which Ukraine assumed when signing the memorandum in 2015.
In the credit register, banks and the Fund for Guaranteeing Deposits of Individuals (if the bank was found insolvent) will transfer information on loans with debts exceeding 100 minimum wages (372.3 thousand UAH). And the National Bank, respectively, will provide such information to banks upon request.
The provisions of the law will be put into effect gradually. Since April 1, banks are obliged to transfer information about transactions subject to the law. In six months (from the beginning of August, but not later than December 31, 2018), the law on information to be submitted to the credit registry should come into force, and from January 1, 2019 - the provision on the use of information from the credit registry to assess credit risk.
According to Olena Kolodyazhna, director of the department of retail risks of FUIB bank, the shortcomings of the law include the extremely short deadlines indicated in it, under which it is difficult to ensure the development and testing of the specified functionality.
Who needs this law?
Adoption of the law is a positive change because at the moment information on debtors is contained in the registers of certain specialized companies. "The practice of maintaining a single register is present in the western societies and is absolutely justified regarding the work experience. This registry makes it possible to reduce the time spent searching for data and administration," says Orest Korenovsky, executive director of credit analysis and restructuring at Kredobank PJSC.
With the proper implementation and application of the credit registry, both banks and regulators can gain some benefits. For the banks, it will give an access to a reliable and complete source of information for managing credit risk.
"Now the bank, when deciding whether to issue a loan or not, can check the credit registry whether the potential borrower has debts on other loans. For a larger account, the NBU credit registry is a point of exchange of information on debtors between different banks," said Bogdan Shabarovsky, lawyer of the Juscutum association.
Olena Kolodyazhna sees benefits for the regulator in obtaining expanded primary information (which it could only familiarize with during on-site audits), modeling capabilities, tracking trends, concentrations, and the ability to reduce the frequency of on-site inspections. That is, the NBU will receive more operational information on the banking system and specific business groups.
In addition, the Law is designed to resolve a number of issues that are not worked out by the NBU. "It’s particularly related to the partial excess of the requested information, which affects the inefficient use of resources within banks to prepare for the launch of the data transfer process, as well as the issue of the transfer of data from the NBU to banks and its use," Olena Kolodyazhna explains.
However, according to Sophia Kykish, lawyer of the legal group "Poberezhnyuk and Partners", with the introduction of the credit registry, private credit bureaus do not stop their work, which leads to a certain legal uncertainty, because these databases may contain various information regarding the debtor or his obligations.
It is obvious that in the work of credit bureaus something will seriously change. Earlier in Ukraine there were several bureaus that collected information about debtors, but banks were not required to work with any of them and none of these organizations had information about all borrowers of all banks. The creation of a centralized register of "bad" loans threatens the existence of the bureaus as such, but they have the opportunity to continue to make a competitive product.
What will be changed?
As for positive innovations, they can be related to a relatively simple procedure for obtaining information from the register, which will be provided to banks in real time on a no-cost basis, the systematization of all necessary data in one information base and the real possibility of a financial institution to reduce risks in the provision of loans.
This law will affect the parties in different ways, but even in the "hardest" version, it will not carry cardinal changes compared to the situation before the adoption of the document. For bona fide borrowers, the law will not change anything: if a legal or natural person pays a loan on a regular basis, it will not appear in the NBU credit registry.
According to Olena Kolodyazhna, for the debtors - individuals, as well as for banks working with individuals on unsecured loans, this innovation will not directly change anything. In Ukraine, we have efficiently functioning bureau of credit histories, information from which is widely used by banks and microfinance companies when issuing loans and when assessing credit risks.
At the same time, entering the personal data of the borrowers in the credit register in accordance with the practice of the ECHR can be qualified as interference in human rights, which must be necessary and proportional to the goals. "Given this, after the law enters into force, the treatment of debtors entered in the credit registry with relevant lawsuits to national and international courts cannot be ruled out," Sophia Kykish emphasizes.
The limitation on the amount of debt in 372.3 thousand UAH has already narrowed the circle of those who will be included in the credit registry. Individuals often take loans from different banks for much smaller amounts and they are not returned, so these debtors will not be noted in the credit register. However, data on their violations of payment discipline has long been in the credit bureaus, which is already limiting their ability to receive new loans.
A more significant impact from the introduction of the credit registry can be expected in the framework of lending to legal entities and issuing collateral loans to individuals. Obviously, this law will certainly complicate for the current debtors the possibility of attracting new bank loans, since the register will allow banks to see which borrowers had previously had problems with debt repayment.
"Those who have a large debt (more than UAH 372,3 thousand) will find it more difficult to receive new loans. In a situation where such debt was allowed by the company, the credit registry will contain information not only about this company but also about the related persons, as well as owners of more than 10% stake in the company," explains Bohdan Shabarovsky.
Banks will inform customers on the transfer of information to the register, and they will be able to access information about themselves in the register and demand changes in case of disagreement with its content.
"In case of disagreement with the data, the borrower has the right to apply to the National Bank with a request, which will be processed within 21 working days. Thus, the errors of the banks in providing information, given the lengthy consideration of the application, may, for example, be the reason for refusing to receive an important loan in another bank, which, of course, will create obstacles in the business activity of enterprises lasting almost one month," adds Sophia Kykish.
The main goal of the registry is to reduce the number of problem loans in banks and improve the payment discipline of borrowers. There's a lot of work in this area. As of March 1, 2018, the portfolio of problem loans with regard to the total amount of loans issued was 56.6% (UAH 639 billion).
Experts are sure that this goal is quite achievable. "If banks conscientiously provide information to the credit registry and use it in good faith when making a decision to grant a loan, then the volume of problem loans should significantly decrease," says Bohdan Shabarovsky.
In general, as Orest Korenovsky points out, the strengthening of control over information and its quality and accessibility should ultimately lead to an improvement in the payment discipline of clients who rely on the use of credit.
"However, it is necessary to establish an appropriate level of protection of the personal data of borrowers, to prevent unauthorized access of third parties to the register and to improve the procedure for introducing changes to the register, as well as establishing the banks' responsibility for untimely or unreliable information entry," concludes Sophia Kykish.