(Reuters) - Brazil’s five biggest commercial banks agreed on Thursday to set up a credit research company to gather information on borrowers’ bill-paying history, in a step aimed at bringing down borrowing costs amid the country’s longest recession in over a century.
Under terms of the deal, state-controlled Banco do Brasil SA and Caixa Econômica Federal as well as private-sector lenders Itaú Unibanco Holding SA, Banco Bradesco SA and Banco Santander Brasil SA will each take a 20% stake in the so-called positive credit bureau GIC.
With defaults at a six-year high and debt payments consuming 46% of household income, the implementation of a credit bureau rewarding prompt payers should reduce the cost of credit, Murilo Portugal, president of banking industry group Febraban, said in a statement.
The move “will create opportunities to develop new tools to improve the effectiveness of credit decision-making and loan pricing as well as the dissemination of responsible market practices,” Portugal was quoted by the statement as saying.
The new credit bureau comes as Brazilians pass up new loans at the fastest pace in a decade. Local banks charge the world’s highest borrowing costs, partly because of rules that have let borrowers get away with defaults for years.
Brazil’s recession, which economists expect to be the longest since 1901, has revealed the shortcomings of President Dilma Rousseff’s growth model based on loan-fueled consumption.
Families took on massive debts between 2009 and 2014, but reined in borrowing last year as unemployment rose, activity slumped and the currency plunged to an all-time low.
The Rousseff administration set rules for the creation and operation of positive credit bureaus in 2012. The regulations aimed to phase outBrazil’s current loan scoring system based on the blacklisting of defaulters, with no incentives for those who are up to date on their debts.
GIC, which stands for Gestora de Inteligência de Crédito, will have autonomous management and board members who work full time for the company, the statement said. GIC hired LexisNexis Risk Solutions FL Inc to help develop and implement a credit scoring platform.
Positive bureaus often reward borrowers’ timely payments, making risk scores built on bureau data much more reliable.
Some of the companies that began implementing a similar approach to credit scoring in Brazil in recent years include Experian Plc and Fair Isaac Corp, or Fico.
Reporting by Guillermo Parra-Bernal