Ebook Development of Database on Corporate Credit Information For ASEAN Plus Three Financial Ministers Meeting, Research Group
While private banking still plays the main role in the region as a financial intermediary in East Asia, local domestic banks are not responding well enough to the strong requirements for finance in the communities they serve. A particularly significant fact underlying this current situation is the problem of "information asymmetry," where by financial institutions lack adequate information on borrowing firms, especially small and medium-sized enterprises (SMEs), the cost for information gathering is high for them, and the accuracy of available information remains low. This results in the lack of their access to finance.
This issue is particularly important in East Asia, because of the widely-recognized dominant roles of SMEs, in creating employment opportunities, supporting local economic activities, promoting entrepreneurship, producing innovations, and supporting larger corporations. This is true both in the industrialized countries among the ASEAN plus three members, i.e. Japan and Korea, and the developing countries in the region. This lack and incompleteness of financial information in the banks has led to the SMEs’ lack of access to formal finance. Moreover, in terms of macro-economy, the weak finance sometimes led to the outflows of domestic financial resources once from the region, which are in turn re-invested toward East Asia by the foreign financial firms.
An important approach to address the problem of information asymmetry is to improve the provision of information for systematic evaluation by the financial institutions about the creditworthiness of business borrowers. One of the organizational forms to provide such information is the rating agency, which is solely engaged in rating and related work. The rating agencies in East Asia tend to operate for the largest firms, only. On the other hand, the governments in East Asia become increasingly interested in creating and strengthening information sharing system, such as credit bureaus / registries. Electronic database of the financial information, either publicly or privately operated, are being established, based on the accumulated data in the credit bureaus and other institutions. In the United States, the credit histories of the owners of SMEs are used for loan evaluation my means of a credit scoring model. In Japan, kind of semi-private and semi-public organization is established as an information sharing mechanism for SMEs.
This report examines the perspectives and issues of the development of databases of corporate credit information for promotion of the financial market development in East Asia. The financial databases specified in this report are the electronic database of financial indicators of the lending firms to be used by the financial institutions and lenders for their credit evaluation. As indicated above, the focus is naturally placed on the bank lending to the SMEs in the region. However, the analysis and recommendations in this report cover the roles of the database for the bond financing in the region, as well as the finance to the SMEs and consumers through the financial institutions other than banks. And the discussion extends to the possible contributions of the database to the creation of the common bond markets in the region.
One of the motivations of the Asian Bond Market Initiative (ABMI) is to mobilize the domestic financial resources within the region, that may also contribute to the monetary and currency stability. The establishment of the financial information database will serve the similar objective to that of ABMI, i.e. to facilitate the domestic financial resource mobilization. Moreover, the well-prepared database of the corporate credit information will serve as basic infrastructure for the ABMI, too.
This report consists of four chapters and conclusion with policy recommendations. The theoretical consideration on the information and financial intermediary comes first in Chapter 1, followed by more detail research on the
information sharing mechanism in Chapter 2. The advanced experience in the United States and Europe is introduced in this chapter. The next chapter (Chapter 3) contains a comprehensive study on the credit information database in Japan. A unique mix of semi-public, semi-private credit information database for SMEs in introduced in detail in the chapter. A review on the present status and perspectives in the credit information in ASEAN countries is in Chapter 4, considering the challenges and issues to develop the SME finance through the establishment of credit information database. Finally, a short summary of the implications of the research and policy implications comes. Policy recommendations conclude the report.
Contents
List of Tables and Figures
Introduction
Chapter 1: The Roles and Characteristics of Credit Information
1-1. Information Asymmetry and Financial Intermediaries
- 1-1-1. Information Economics and Financial Markets: Information Asymmetry
1-1-2. Banks as Institutions to Reduce Information Asymmetry
1-1-3. Financial Intermediation as an Information Transmitter
1-1-4. Diverse Lending Technologies To Reduce Information Asymmetry
1-2. Banks as Intermediary in East Asia
- 1-2-1. Banks as intermediary in East Asia: Historical Review
(1) The Bank-based Financial System in Japan
(2) Small- and Medium-seized Enterprises Lending in Japan
(3) Bank- and Government-led Financial Intermediaries in Korea
(4) Foreign Direct Investment-led Finance in the ASEAN Countries
1-2-2. The Status of Bank Lending in East Asia
(1) Common Features in East Asia: Bank Loans Dominate Over Bond Finance
(2) Explanatory Factors of Bank-based Intermediary System
(3) Dominance of SMEs and Their Lack of Access to Finance
1-3. Emergence of New Financial Technologies: Pooling and Sharing Information
Chapter 2: Information Pooling and Sharing Systems and Database
2-1. Introduction: Pooling and Sharing of Credit Information
2-2. Prerequisites for and Features of a Credit Database
2-3. Public and Private Credit Registries
- 2-3-1 Public and Private Credit Registries
2-3-2 Development of Credit Registries in the US and Europe
Appendix 1: History of Integration of Credit Bureau in the United States
Appendix 2: Regional Integration and Credit registries in Europe
2-4. Credit Scoring Models
- 2-4-1 Development of Credit Scoring System
Appendix: Credit Scoring Model Techniques
2-4-2 Scoring Model and Basle II Standards
2-5. The Roles of Pooled Financial Database
- 2-5-1 Pooled Financial Database
2-5-2 Strong Relevance of Credit Scoring to SMEs
2-5-3 Scoring and Securitization
2-6 Credit Rating Agencies
- 2-6-1 Credit Rating Agencies: Tools of Screening
2-6-2 Influences of the Rating Agencies of the United States
2-6-3 CRAs Reform
2-6-4 CRAs and Corporate Credit Database in East Asia
Chapter 3: Database of Credit Information in Japan
3-1. Background
- 3-1-1 Credit Crunch after “Bubble Economy” in the 1990s
(1) Emergence of Non-performing Bank Loans during the Post-bubble Period
(2) Non-performing Loans and Credit Crunch
(3) Financial Revitalization Program
(4) Policies Ensuring the Lending to SMEs
3-1-2 Basel Capital Accords and Financial Database in Japan
(1) Basel Capital Accord I
(2) Introduction of New BIS’s Capital Adequacy Requirements
(Basel II) in Japan
(3) Implication of the Basel Accord II on SMEs Financial Information Database
3-2. Challenges to Establish Credit Information Database for SMEs
- 3-2-1 What Is the CRD?
3-2-2 Free Rider Problem on Information
3-3. “Credit Risk Database” (CRD) in Japan
- 3-3-1 What Is the CRD?
3-3-2 How Does the CRD Work?
3-3-3 CRD Scoring Model
(1) Structure of the Scoring Model of the CRD
(2) Reliability of SME Data
(3) Model Reliability
3-3-4 Problems Encountered When Establishing the CRD
3-4. Conclusion and Future Issues to be addressed
- 3-4-1 Conclusion and Issues for the CRD
3-4-2 Applicability to East Asia
Annex: Characteristics of SMEs in Japan – An Analysis from CRD Database
Chapter 4 Database of Credit Information in ASEAN
4-1. The Present Status of Credit Information in ASEAN plus Three
4-2. The State of Credit Information System in Selected ASEAN Countries
- 4-2-1 Credit Bureau Development in Malaysia
4-2-2 Credit Bureau Development in Singapore
4-2-3 Credit Bureau Development in Thailand
4-3. SME Development and Credit Information Systems in ASEAN
- 4-3-1 The Problem of Credit Demand and Supply in ASEAN
4-3-2 Source of SME Financing in ASEAN
4-3-3 The Impact of Financial Access on SME Development
4-3-3 Credit Bureau and SME Development
4-4. Issues in Credit Information System within the ASAN
- 4-4-1 Issues in Credit Information Systems within the ASEAN
4-4-2 ASEAN Credit Information Sharing System: Necessary Infrastructure
4-4-3 Key Features of Credit Information Systems
Conclusion and Policy Recommendations
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