BSP launches SME credit risk database

THE Bangko Sentral ng Pilipinas (BSP) has launched a credit risk database with a web-based scoring system which will allow financial institutions to evaluate small businesses and boost credit access.

“It aims to enhance access to credit of small and medium enterprises (SMEs) by helping financial institutions (FIs) assess the creditworthiness of their SME borrowers, creating a truly inclusive economy,” the BSP said in a memorandum on its website.

The Credit Risk Database Philippines Web-based Scoring System (CRDPh System) is an automated platform designed to streamline the secured submission and processing of data and retrieval of credit risk database outputs.

It transitioned to a web-based platform from the previous standalone CRD scoring tool.

“By complementing existing models and tools, the CRDPh System expects to enhance the FIs’ credit risk-based evaluation of SME borrowers, address information asymmetry, improve loan pricing, reduce dependence on collateral, and ultimately support access to finance of SMEs.”

Banks continued to miss the lending quota for small businesses at the end of March, extending just P546.82 billion to micro, small and medium enterprises (MSMEs), equivalent to 4.63% of their total loan portfolio of P11.82 trillion.

This fell short of the 10% overall requirement under the Magna Carta for MSMEs. Under the law, banks must allocate 8% of their loan portfolio to micro and small enterprises, and 2% to medium-sized businesses.

For years, most banks have opted to incur penalties for noncompliance with the lending quota instead of taking on the risk associated with lending to small businesses.

Analysts have attributed the failure to meet the lending quotas to the dearth of credit information on these types of borrowers.

The first phase of the project, which was launched in 2020, covered the construction of the database of SME data; the development and validation of the scoring model; and the deployment to pioneer FIs.

“The ongoing Phase 2 of the CRD project will support the development of new CRD services and a transition plan toward a sustainable, permanent operation beyond the project-based phase,” it added.

The CRDPh System was primarily developed to “facilitate transition of CRD from project-based to sustainable operation.”

“Once additional services are developed, the CRDPh System will also provide FIs with statistical information on SMEs which will be useful in understanding trends and patterns in the SME sector and formulation of business strategies.”

Additional services include comparison of CRD outputs with the FI’s internal rating/score, consultancy service for/analysis of FIs’ SME client, and statistical information.

“Furthermore, the CRDPh System is envisioned to encourage FIs to efficiently manage SME data as they are required to periodically submit SME data to continuously enhance the CRD database,” it said.

The project is a joint initiative with the Japan International Cooperation Agency.

There are a total of 33 pioneer financial institutions currently participating in the project. These are institutions that voluntarily shared data for the construction of the CRD database and scoring model.

“On the other hand, participating FIs are FIs which will utilize and access the CRDPh System to generate CRD outputs and periodically submit data. Thus, participating FIs are considered as both data contributors and users of the CRD scoring model.”

The Philippines is also the first country to adopt the CRD outside Japan, it added.

“CRD is a large-scale database of anonymized financial, non-financial and borrower performance-related (due dates and past due status) data of small and medium enterprises (SME) provided by pioneer FIs from which a statistical credit scoring model was developed.”

The scoring model can generate the probability of default and credit score output of an SME borrower in a particular group of similar attributes, as data is anonymized, the BSP said.

CRD outputs can be used to assess the capacity of SMEs to repay loans, validate or develop internal rating systems, and align pricing decisions or strategies with borrowers’ credit risk profile. — Luisa Maria Jacinta C. Jocson