Loan History Matters In Bulgaria

Entry to the EuropeanUnion has reverberated across a number of sectors. However, it has hada limited impact on a phenomenon that has persisted throughout the pastfew years. Fast expansion in the loans market has seen Bulgaria’s loanexposure reach the levels of the rest of Europe, a recent report said.Yet it also said that Bulgarians have half the income other Europeansdo, which immediately casts doubt on the ability of Bulgarians to repaytheir loans. In addition, banks’ portfolios have become too dependenton loans, the average percentage in commercial banks’ assets being, atabout 70 per cent, past the tentative ceiling of 50 per cent. Thesituation prompted Bulgarian National Bank (BNB) to raise the share ofmandatory reserves commercial banks hold with the central bank fromeight to 12 per cent as of September this year.

This, however, has hardly served as a deterrent to increasingmortgage loans. Reports circulated over the past week saw the volume ofmortgages doubling compared to the past year, with more than 70 percent of individuals taking out a loan when buying a home. The number ofloans 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 onloan payments. Although not an immediate threat, with the share of badloans currently at two per cent, calls that the situation is conduciveto a dramatic increase at times of recession are growing. As bankingexperts said, the explanation is simple: whenever borrowers’ purchasingpower goes down, loan repayments are the first thing they slash fromtheir monthly outgoings.

Within this environment the role of public and private authoritiesthat can duly assess the creditworthiness of loan applicants isincreasingly important. The International Finance Corporation (IFC) andthe World Bank (WB) have recognised the need for the existence ofcredit bureaus as an essential component of financial infrastructure,the set of financial institutions that allow for the proper functioningof financial intermediaries. Alongside payment systems and collateralregistries, credit bureaus have their due place in evaluating, andharnessing, the risk that lenders assume on issuing a loan. As do theylimit the probability of fraud.

Though the IFC has not initiated the establishment of a creditbureau in Bulgaria within its credit bureau programme project, it haspaid due attention to the existence in Bulgaria of a credit registry atthe BNB and a private credit bureau.

The private credit bureau of Experian, a top three loan riskassessor in the US and worldwide, has taken off since its wasestablished two and a half years ago. It has provided lenders with moretransparency when taking decisions to issue loans than, say, a yearago. Unlike the BNB loan registry that gives a general account of aborrower’s loans, Experian provides a complete and detailed breakdownon each prospective borrower, be it an individual or a commercialentity.

Darina Oresharova, an operations manager at Experian, told The SofiaEcho that the bureau provided detailed information on each loanaccount, both personal and loan-related. Among data the bureau providedwas past payments of loans, days overdue, warrantors and co-borrowers,she said. Experian’s partnership with a number of related registriesallowed members of the bureau to also get access to informationavailable at the Bulstat and the Social Security Institute.

Experian was shortly due to sign partnership agreements with theNational Personal Civil Status Database, Oresharova said. The registrycontains personal data such as the Unified Civic Number, address andmarital status.

The official said that all loan enquiries had been made with theapproval of the loan applicants, in conformity with the Law onProtection of Personal Data and the regulations of the Commission forthe Protection of Personal Data.

“The credit bureau operates on the reciprocity principle, i.e. thelevel of information the bureau receives from a certain institutionequals the degree of information provided to it,” Oresharova said.

The organisations participating in the bureau retain ownership ofthe data and the information is used solely for the purpose ofassessing the loan application.

Access to a comprehensive set of data allows the lenders’ peace ofmind and the establishment of a disciplined fiscal environment overall. Hopes are that the credit bureau, alongside those that are set topose competition to Experian, will serve as the cushion against marketturmoil that has recently shaken the global mortgage market.simplibulgaria.com