In Europe, first credit registers were established already at the beginning of the previous century and have become part of the architecture of the developed market economy occupying a permanent and crucial position. The place is due to the fact that the registers and the possibility to make use of their databases are linked to a major determinant in banking operations – the risk level assessment and management.
This applies to both the micro approach concerning individual banks and the macro approach, that is system risk. It is especially significant in the light of the last financial crisis. This is the reason why the significance of information exchange systems has drawn the attention of regulatory authorities, both those international (e.g. the Basel Committee) and national – in Poland – the Polish Financial Supervision Authority. The tendency also covers current activities to supervise the operations of loan companies.
Information exchange systems make it possible to reduce, to some extent at least, the information asymmetry between those who apply for credits and loans and those who grant them. Thus, not only does the quality of bank's credit portfolios improve but also the reduction of system risk is enhanced; so is the proper allocation of financial means within the entire economy. The implementation of the above requires a number of prerequisites to be fulfilled such as the quality of information possessed, its correctness, adequacy for the realities and thus the speed with which changes are reflected, completeness, accessibility etc. It entails specific technological requirements, which are not easy to observe, especially if we bear in mind the large number of participants in the exchange.
Reliable information about contractors or customers allows one to reduce the risk of decisions taken. It enables one to customise the product and its price better to suit the needs and possibilities of contractors.
Biuro Informacji Kredytowej is the only establishment in Poland to gather full information on the credit obligations of consumers and entrepreneurs, cooperating in this area with banks, Spółdzielcze Kasy Oszczędnościowo-Kredytowe (Credit and Savings Unions) and other financial establishments authorised to grant consumer credits. Thus the operations of Biuro Informacji Kredytowej make it possible to:
Deepen the knowledge of establishments which provide credits and loans concerning borrowers and the reduction of risk involved by wrong credit decisions. In consequence, they improve the credit portfolio's quality and reduce the scale of losses.
Limit the “information asymmetry” between the lender and the borrower. Information exchange helps to balance the information standing of the bank and of the bank's customer. It also reduces the particular information advantage of the bank providing information over other market players, bolsters market competition and provide all the parties with the same information resources when they take the decision and determine credit terms and conditions. In effect, it scales up the credit campaign and leads to more favourable conditions of access to credits.
Enforce debt service by borrowers. The exchange of information concerning borrowers' default in paying their liabilities is a crucial contributor to their debt service. For fear of disreputation and being “cut off” from credit in the case of “bad” credit records or having higher interest rates due to generating higher risk, borrowers get motivated and avoid arrears in their debt service.
Prevent excessive indebtedness. If no information is exchanged, raising credits with many credit establishments could lead to the borrower's excessive indebtedness and thus to difficulties in servicing one's debt. The exchange of information of existing credit liabilities allows banks to assess the borrower's actual credit standing and debt service burden and to loan money to those customers who will be able to repay the credit. In consequence, credit information systems and credit registers play an essential social role supporting responsible crediting (allowing for the assessment of the prospect borrower's full credit exposure and obligations scale) and responsible borrowing (making the prospect borrower aware of their scale of obligations). They are, therefore, a very important instrument to combat a socially harmful phenomenon of excessive indebtedness.
In addition, Biuro Informacji Kredytowej enables trans-border exchange of credit information with three EU states with the largest representations of Polish migrants in Europe: Great Britain, Germany and Italy.
This is an indirect model of credit data exchange, where foreign credit registers (Equifax, Schufa, Criff) and BIK are intermediaries in the distribution of data among banks in those countries and in Poland.
Article by BIK