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Banks

Brazil partially approves banks' plan to set up credit bureau

SAO PAULO (Reuters) - Brazil’s antitrust watchdog Cade has approved a plan by the country’s top-five commercial banks to set up a credit research company to gather information on borrowers’ bill-paying history, conditional upon a series of requirements to protect competition.

In a statement, Brasilia-based Cade said approving the creation of a so-called credit bureau, Gestora de Inteligência de Crédito (GIC), hinges upon lenders agreeing to avoid concentrating too much authority. There is a perceived risk that the banks could benefit from access to information on their base of clients or impose market barriers on competitors, the statement said.

The decision paves the way for the launch of so-called positive bureaus in Brazil, four years after the government allowed their creation. The move aimed at helping phase out Brazil’s current scoring system based on the blacklisting of defaulters, with no incentives for those who are current with their debts.

With loan defaults near all-time highs and debt payments consuming almost half of household income, the implementation of a credit-scoring company rewarding prompt payers is seen by policymakers and bankers as a way to help cut credit costs. Borrowers in Brazil pay the highest borrowing costs among the world’s major economies.

Still, the restrictions imposed by Cade and which will be reflected in terms of an accord with the banks, underscore regulators’ concern over competition in Brazil’s banking industry, where the country’s top ten lenders have control of almost 90 percent of assets.

One requirement includes setting targets for the expansion of positive credit scoring, which often reward borrowers’ timely payments, making risk scores built on bureau data more reliable. Others include clauses of non-discrimination to competitors in the sale of information and strict corporate governance standards.

GIC’s rivals - Boa Vista Serviços SA and the local units of Experian Plc and Fair Isaac Corp, or FICO - are currently Brazil’s largest providers of borrower quality data. They obtain from banks all data on borrowers’ behavior, promptness patterns as well as estimates on demand for both consumer and corporate credit.

In January, state-controlled Banco do Brasil SA and Caixa Econômica Federal [CEF.UL] teamed up with private-sector banks Itaú Unibanco Holding SA, Banco Bradesco SA and Banco Santander Brasil SA to set up GIC. Each bank will take a 20 percent stake in GIC.

At the time, the banks said GIC will have autonomous management and board members working full-time for the company. GIC hired LexisNexis Risk Solutions FL Inc to help develop and implement a credit-scoring platform.

Reporting by Guillermo Parra-Bernal; editing by Chris Reese, G Crosse

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