Wednesday, July 04, 2007

Clueless Politicians

Other than the many twists and turns in the Altantuya Murder Mystery, the other subject which has been hitting the headlines in the past week or so, has been the controversy over the issue of credit check services provided by CTOS Sdn Bhd. Much has been reported in the press, and most of it was negative.

Even today, the Prime Minister as well as the Finance Minister, Datuk Seri Abdullah Badawi chipped in unintelligently by claiming that "when CTOS made conclusions based on incomplete and outdated information the people concerned would be victimised. I dare make the claim here that Pak Lah has never ever seen the system himself, or he would have realised immmediately that the system does not blacklist individuals or companies.

Before I proceed, let me clarify that:
  • I've had a glimpse the CTOS service
  • I have no idea if my name will produce a result in CTOS
  • I have no shares in CTOS
  • I have no personal dealings with CTOS or its management
My beef on this issue is simply that economically illiterate Ministers are placing the efficiency and credibility of Malaysia's financial institutions at risk.

These statements were made following various allegations made by the Deputy Minister in Prime Minister's Department, Datuk M. Kayveas against the company. (The CEO of CTOS has issued an open letter published in Malaysiakini to the esteemed Minister, and intends to file a defamation suit against the latter.)

Deputy Prime Minister Datuk Seri Najib Tun Razak asked that CTOS "should not create problems or prevent borrowers from getting loans from financial institutions". Most shockingly, Deputy Finance Minister, Datuk Dr Awang Adek Hussien has called on Banks "to stop using the services provided by CTOS".

Credit Information Enables Efficient and Sound Banking System

What CTOS provides is a service which is in demand by financial institutions to evaluate the credit-worthiness of their borrowers. Such information enables lending to be processed efficiently and at a lower risks for banks. No financial institution in the country will be willing to provide loans if such information is lacking or unavailable.

What CTOS does is to collate information which are publicly available and gazetted instantly to subscribers will then make their own assessments with regards to the credit-worthiness of the borrowers. As a result our financial and banking system has become more efficient as loans can be processed in greater confidence within a faster processing period. Banks offering loan approvals within 24-hours cannot do it today without such information.

On the other hand, without the CTOS service, Banks will still have to assess the credit-worthiness of the potential borrowers by reviewing bankruptcy gazettes, public notices in newspapers, company registration information in Companies Commission of Malaysia (CCM), a tedious and time-consuming process. Such a process is inefficient, unwieldy and prone to errors.

Hence, when the Deputy Finance Minister called on Banks to stop using the CTOS service, he is in effect asking our Banks to increase take on unnecessary risk, which will only result in higher non-performing loans (NPLs). Datuk Dr Awang Adek Hussien is also effectively asking them to be less efficient and as a result, less competitive compared to foreign financial institutions.

The General Public Are Winners with a service like CTOS

While parties with a poor credit history are clearly unhappy with the availability of services such as CTOS, it must be made known that the overwhelming majority of Malaysians benefit tremendously from such a system.

A negative search (i.e., no result) in CTOS for example, will often mean that a person's track record is clean. A search on 94% of all Malaysians will result in a negative search. Hence because of the availability of a credit information service like CTOS, these 94% of Malaysians will have their loans or business requirements processed at a faster, more efficient and effective manner. In fact, for many, it may mean higher facilities as well as lower interest rates.

Hence, what our Ministers are unfortunately trying to do is to in effect, to protect Malaysians with potentially weaker credit history while sacrificing the interest of the majority of Malaysians with excellent credit standing.

The Key is Accurate Information

Action should only be taken against CTOS should the information found within the system contain errors, which will then unfairly jeopardise the interest of the victim. CTOS should hence make all necessary effort to ensure that the data within the system is accurate.

In the event whereby CTOS faces difficulty in maintaining an updated record, all efforts must be made to obtain these relevant information. The Government should at the same time ensure that information such as bankrupts who have been discharged, are made available publicly on a timely basis.

Stop Making Unfounded Allegations

The Ministers should therefore stop making unfounded and uneducated allegations against companies such as CTOS, for they are critical in ensuring that our business and financial system and operates in a substantially more efficient and effective manner. They should instead seek direct clarification with CTOS to better understand their services and what necessary improvements should be made.

The Edge financial weekly has asked in its column "Frankly Speaking" this week, "Why shoot the messenger"?
...aren't the critics barking up the wrong tree? They are merely shooting the messenger. The culprits are actually the financial institutions that depend on credit bureaus for information on the credit-worthiness of their clients.

...ultimately, the decision to lend or not to lend to an individual lies with the banks and other financial institutions. There is no obligation on thepart of the banks to make a decision based on what has been provided by credit bureaus.
Even Transparency International has issued a statement with regards to "grave threats to transparency".
By seeking to suppress information, the authorities are “clearly violating freedom of access to information for legitimate business purposes and to be informed on public policy issues,” said TI-M president Ramon V Navaratnam in a statement today.

This freedom is not only essential for the public to make responsible and informed decisions based on fair access to information, but also for an open and transparent democracy to function meaningfully, he explained.

Officials and legislators should also cease their attacks on CTOS and instead raise “concerns about the way credit and financial information is collated and disseminated” with the management, he said.

“The fact that some legislators’ names are listed as defaulters surely does not justify any call to ban the service. We have to be increasingly concerned with public and national interest rather than the protection of individuals,” he added.
It is disappointing that in the midst of attempting to build world-class banks in an increasingly globalised and competitive environment, our clueless Ministers are seeking to eliminate one of the most critical components - "information", from being accessed by our financial institutions.

Instead of taking such a retrogressive step, they should encourage greater competition in this field so as the system will become even more efficient and reliable, benefiting not only our banking industry, but also all Malaysians.
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