BSP promotes SME financing with new credit risk database

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    In order to facilitate increased financing to small and medium enterprises (SMEs), the Bangko Sentral ng Pilipinas (BSP) is working with experts in developing a credit risk database (CRD) that will generate statistical credit scoring models which banks can use to assess the capacity of SMEs to pay loans.

    According to BSP Governor Benjamin E. Diokno, the CRD is part of the central bank’s strategic initiatives to improve SMEs’ access to finance and to support their post-pandemic recovery.

    “The BSP is committed to building a sustainable SME financing ecosystem which is a key driver of inclusive growth,” Diokno said.

    The CRD promotes access to finance of well-managed SMEs by providing banks with a robust credit assessment tool that enables risk-based lending and reduces dependence on collateral for credit decisions.

    The database is a joint initiative of the BSP and the Japan International Cooperation Agency.

    The BSP is working closely with experts from Japan through the CRD-Project Implementation Unit under BSP’s Center for Learning and Inclusion Advocacy.

    The BSP said that 18 banks are participating in the project.

    These are the Land Bank of the Philippines, Development Bank of the Philippines, Security Bank, Rizal Commercial Banking Corporation, Philippine Business Bank, Sterling Bank of Asia, China Savings Bank, Malayan Bank, Philippine Savings Bank, UCPB Savings Bank, Producers Savings Bank, Sun Savings Bank, AllBank, Overseas Filipino Bank, CARD SME Bank and First Consolidated Bank.

    According to the BSP, the database will contain anonymized credit risk information of SMEs such as data from financial statements, default related data and non-financial data.

    The BSP explained that CRD addresses SMEs’ reluctance to apply for bank loans due to lack of credit history and acceptable collateral; as well as banks’ perception that SMEs in general are high risk.

    Project implementation will run for three years, with the launch of CRD credit scoring services targeted in the first half of 2023.

    Part of the project deliverable is the governance and business model for CRD’s permanent operations.

    Data collection from the initial list of participating banks will start in mid-November this year.

    Meanwhile, the BSP released the enhanced Report on the Philippine Financial System for the First Semester of 2020 which highlights the narrative of the Philippine financial system as it entered the COVID-19 pandemic in a position of strength, and stayed relatively sound and stable while providing continued support to the financing needs of the domestic economy.

    “Despite the immense economic disruption following the outbreak of COVID-19, decisive, time-bound and wide-ranging policy responses have helped to prevent a seizing-up of the banking system”, Diokno said.

    The impact of the pandemic on the overall condition and performance of the banking system, which remains the core of the domestic financial system, has been manageable.

    The financial soundness indicators (FSIs), which assessed the banking system’s strengths and weaknesses, affirmed that the banking system is resilient during the first half of 2020.

    Moreover, the FSI analysis implies that consequent risks from lending should be monitored moving forward especially in the event of excessive uncertainties that could place additional pressures on the banking system.

    The pandemic also accelerated the digital transformation of the banking system through the increased usage of digital financial platforms.

    This was driven by the opening of around 4.1 million digital accounts among banks and non-bank electronic money issuers (EMIs) and significant increase in Insta Pay and PesoNet transactions during the ECQ period.