The COVID-19 pandemic has undoubtedly caused a shock at the global economy with the exceptional containment measures having a far-reaching impact on both business and consumers. In response, the European regulatory Authorities with the support of the lenders have implemented a broad range of relief measures, mainly temporary moratoria on credit payments, aiming to ensure that customers are adequately supported during the pandemic. At the same time, national and European supervisory authorities relaxed certain supervisory requirements for financial institutions and released counter-cyclical buffers for banks, while Central Banks provided additional liquidity to the financial systems.
From their side, Credit Bureaus, being an integral part of this ecosystem and acknowledging fully the importance of their role especially at such times of financial crises, have ensured that the data processing related to credit payment moratoria, does not negatively impact the borrowers’ credit files, namely the credit history and scores of businesses and consumers. This practice is in line with the recommendations from the International Committee on Credit Reporting which, in addition, supported that the credit providers should continue sharing full credit data (positive & negative) with the credit reporting service providers during the crisis, as with normal times This is imperative as credit reporting systems should have relevant, accurate, timely and sufficient data so as their integrity, and in extend the integrity and the efficiency of the financial markets, is safeguarded.
Artemis Bank Information Systems Ltd (“Artemis”), being the Cyprus’ Credit Bureau, followed the same path: Throughout the pandemic Artemis ensured business and operational continuity, receiving, processing and reporting in a timely manner full credit information from and to all 34 participating institutions, which are banks and Credit Acquiring Companies. This was achieved through the close cooperation of Artemis with all the participating institutions, the Association of Cyprus Banks, as well as the Central Bank of Cyprus and the Office of the Commissioner for Personal Data Protection, as the Artemis’ supervisory authorities. Throughout this period Artemis database reflected accurately the status of the credit facilities of the borrowers who were benefited by the credit payment moratoria scheme applied in Cyprus.
Today Artemis continues to cover 100% of the market and through its data has been supporting in a tangible way its data recipients in the process of the creditworthiness assessment of prospective and existing borrowers. As the Cypriot banks continue their efforts of reducing further the ratio of their Non-Performing Loans amidst the uncertainty created by the new economic shock of the pandemic, the systemic role of Artemis as the only Credit Bureau in Cyprus, becomes even more important. At times of excess banks liquidity, the Artemis data help banks to identify the most suitable borrowers having the ability to repay promptly and fully their credit facilities. In this way, banks are supported in managing efficiently their credit risk as the creditworthiness assessment is the basis for “responsible lending” by the creditors.
On the other hand, the Artemis data help the practicing of “responsible borrowing” by the borrowers, both consumers and businesses. The Artemis data help them to gain and retain a clear picture of their own financial standing, enabling responsible financial management and a better management of their finances. In this way, at a macro-level and in the long-run, Artemis supports the effort of the Cypriot economy to tackle the households’ over-indebtedness issue. The effort of applying responsible borrowing among the Public will be reinforced by Artemis initiatives in the area of financial education which falls within the context of financial literacy, an initiative being materialized at a national level and in which Artemis plans to engage.
The anticipated enhancement of the credit reporting framework in Cyprus is envisaged to enable Artemis to enrich its data breadth and depth and introduce new value-adding, data analytics-driven products which will support its mission as a Credit Bureau. Data comprehensiveness in credit reporting systems does matter as it reinforces the role of a Credit Bureau in addressing efficiently the fundamental problem of “information asymmetry” between borrowers and lenders which is evidenced in credit markets. Information asymmetry refers to the fact that the debtor is always more informed about his financial standing compared to the creditor who is evaluating whether to extend credit to the debtor. Information asymmetry typically leads to other issues as well, namely “adverse selection”, “credit rationing” and “moral hazard”, analysed below.
The problem of “adverse selection” refers to the phenomenon of potential debtors who are most likely to produce undesirable results being the ones most actively seeking a credit facility and actually are likely to be selected since good debtors are less willing to pay a risk premium and tend to withdraw their loan applications. The issue of “credit rationing” describes the situation in which a debtor becomes able to borrow more money than is able to repay under normal circumstances while on the other hand, creditors appear willing to lend only a fraction of the amount to a debtor who can actually repay. “Moral hazard” refers to the issue of debtors who may enter into a credit facility contract with no intention of honouring it.
In addition, as indicated by a study conducted in 2019 by the European Credit Research Institute, higher comprehensiveness in the data collected will improve the functioning of credit markets in the EU countries. This finding is supported by the fact that data comprehensiveness boosts the access of consumers to credit (“financial inclusion”), encourages the banks to channel more savings to consumer credit (“financial intermediation”) and decreases the risk of missed payments (“financial risk”). At the same time, the inclusion of non-traditional data in a Credit Bureau’s register, which is the new trend in the credit reporting industry, proves to add value in the traditional creditworthiness assessment process and in specific in the predictive accuracy of credit risk models and in the offering of a holistic view of the customer. This broad data category includes open-banking data, non-loan payments (utilities, rental and tax obligations) and other types of data not directly related to credit.
The enhancement of the Artemis register and the enrichment of its products portfolio will also support the banks’ digital transformation strategies in progress and their efforts to optimize operational efficiency in their credit risk management related processes. Consequently, efficient lending ultimately generates increased banking activity and economic growth which is exactly what is required at times of financial distress like the current one.
With full respect to the citizens’ rights, the personal data protection and the legal framework is operating in, Artemis aims to increase its footprint and value in the credit reporting ecosystem in Cyprus while retaining its role as the most reliable and comprehensive source of credit information in Cyprus to the benefit of creditors, debtors and the economy, at large. As the Cypriot economy moves along the path of recovery from the new economic crisis caused by the pandemic, Artemis will continue helping in the safeguarding of commercial credit, the mitigation of credit risk and the promotion of the reliability of transactions. As Artemis gradually moves to the materialization of its strategic roadmap in the footsteps of advanced Credit Bureaus abroad, is expected to play an even bigger role to the smoothening of the functioning and the strengthening of the Cypriot economy.