The Bangko Sentral ng Pilipinas (BSP) is now in its next phase or second stage of implementing the credit risk database (CRD) project, with 33 banks participating to provide credit assessment and access to small and medium enterprises (SMEs).
During the CRD Phase 2 launch on Wednesday, Dec. 11, BSP Governor Eli M. Remolona Jr. said the CRD is “like an essential public utility” and the “plumbing of the banking system.”
“It would help us lend to our small borrowers,” he said, adding, “I know we will sustain the momentum that we’ve already built (from Phase 1).” The aim is to bridge the funding gap for SMEs and enhance the credit risk management of financial institutions.
The CRD scoring model was developed with the Japan International Cooperation Agency (JICA) to improve SMEs’ access to loans by helping banks assess borrowers’ creditworthiness. Basically, the CRD uses statistical credit scoring models to predict the probability of an SME to default. Thus, CRD will ensure better management of risks by banks.
JICA Chief Representative Sakamoto Takema said Wednesday that while on Phase 2 of the CRD project, he encourages the establishment of a permanent operating body for the CRD Operation Entity or COE which will operate and maintain the CRD services in the Philippines.
“Our CRD project can revolutionize the banking sector (and) make significant contributions to SMEs,” he said.
However, he emphasized that during the next phase, the important thing is to ensure the sustainability of CRD to achieve its goals such as to maintain the “robustness” of the database through a secure environment, to maintain the accuracy of the scoring model; and all the expertise, skills and knowledge about CRD should be further developed and continuously maintained.
“33 financial institutions ranging from rural banks to universal/commercial banks have already agreed to provide data for this project to promote financial inclusion for SMEs,” said Sakamoto. “We still need to do more to promote risk-based lending rather than just relying on conventional collateral-based lending,” he added.
Bank lending to SMEs remains low. The latest numbers showed loans to SMEs only accounted for less than five percent of the total loan portfolio of the banking system, way below the required 10 percent.
BSP Deputy Governor Bernadette Romulo-Puyat is hoping the next stage for the CRD project will have more of a direct impact on financial inclusion especially for SMEs.
She also announced that the project is transitioning into a web-based service for better dissemination. “We’re building a future where SMEs have better access to credit,” she said.
Romulo-Puyat noted that in just four years, the BSP and its partners built a large SME database and developed a scoring tool to assess credit risks better.
The BSP and JICA developed the credit scoring model for three years or from 2020 during the pandemic. One key feature of the CRD scoring model is that it is using data based on anonymous equation and datapoints.
The Philippines is the first country outside of Japan to adopt the CRD.