It's never been easy to borrow money, but the National Credit Bureau is making a difference
If you have ever applied for a loan in Thailand to buy a house, car or even a new television, they know about your credit history. Even missing a single credit card payment will be recorded in their database. On their files they have details of 16 million people and 65 million accounts. The National Credit Bureau (NCB) also holds records on 300,000 companies with four million accounts and processes about one million transactions a month.
"The NCB is one of the most important organisations in Thailand affecting many people and financial institutions such as commercial and private banks, credit card issuers, leasing and hire-purchase companies to mention only a few," says the NCB's chief executive officer Niwat Kanjanaphoomin.
"If someone, whether it is an individual or company anywhere in Thailand, wants to borrow money, we will provide the customer's detail information stored in our computer system to the financial institution's head office."
The NCB, housed on the 10th floor of Central World Tower, was spawned by the 1997 Asian financial crisis to help reign in reckless lending practices and provide banks, financial institutions and credit companies with credit histories of customers. It employs about 80 staff and information is inputed into a secure database which the NCB has invested a 100 million baht in The NCB came into existence on May 19, 2005 with Mr Niwat, an experienced banker and former senior director of the Government Pension Fund and a first vice-president of Bank Thai Plc, recruited as the CEO.
''We used to have two credit bureaus in Thailand who competed with each other, with information scattered between them. It didn't benefit the financial institutions because when they wanted to check credit of the client they had to contact both credit companies. Also, some banks send your data to one credit bureau and another bank to the other credit bureau.''
The NCB is a private company and most of the shareholders are private and government banks. Mr Niwat said it has 80 members from different financial institutions who share information.
''Our revenue comes from them. They are paying us monthly fees.
''We are in a good situation because at this moment we have no competitor. I don't think we will have one soon, it is difficult to set up,'' Mr Niwat said.
SUCCESS STORY
Mr Niwat believes the NCB has so far achieved its goals. ''At that time we didn't have a credit bureau,'' he said of the 1997 crisis. ''Banks, for example, approved loans without enough information about the client. You couldn't check whether the client had good credit with other banks. They just looked at the information that they got from the application. Obviously, the customers wouldn't say anything negative.''
''In 1997, the customers didn't pay back loans to the banks. From one bank, it impacted the others, resulting in problems for financial institutions. That's why in 2002 the government enacted the Credit Bureau Act and said we need a credit bureau. The presence of a credit bureau helps the banks understand a customer's behaviour and discipline. They know the customer well and therefore they may be willing to take more risk. Even low-income people who couldn't obtain a loan before can get one now if there credit record is good.''
Mr Niwat is confident Thailand has passed the worst of the current economic downturn.
''In 2007 the economy went into a recession and this dragged on until 2008. But now it is much better,'' he said. ''The impact showed very severely in early 2009. In 2007 and 2008, we had almost 1 million transactions per month, but in 2009 it went down to 600,000-700,000 per month, meaning that financial institutions were very strict on loan applicants. That's why we can see a drop of transactions. However, this year the number has started to go up to about 1 million per month again (see diagram above).''
Mr Niwat said businesses had also been wiser. ''Everyone who survived until 2008 has learned from the 1997 financial crisis. They know when a crisis comes how to prepare. Most of them cut down production and were more careful with cash flow.''
He also sees few problems with the property market when compared with 1997, saying that prices were still on the rise.
PRIVACY
Despite the bureau holding so much financial and personal information on individuals and companies, Mr Niwat said there is no suggestion law enforcement agencies unlawfully access the information.
''Normally, if the police ask us for information we won't release it unless we obtain the individual's consent,'' he says. ''However, in certain cases stated by law police are allowed to access it without consent of the owner; when it involves a big financial crime that affects many people (not a general crime, a case between two people, or a civil case). After the police access the information, we inform the person that police made an enquiry.
''The law provides protection for the privacy of the person. We are prudent in this respect,'' he said.
Financial institutions can only check a credit history when the customer applies for a loan and gives his or her consent.
Individuals can check their own credit record rating by visiting the NCB branch at Government Housing Bank Head Office located on Rama 9 Road and paying a 100 baht fee. Around 300-400 persons check their credit rating every day and the result is available in 15 minutes.
People living in other parts of Thailand can make similar request at Siam City Bank or ACL Bank, with a report sent to them by registered mail within a week.
To update its records a financial institution gives information on a borrower to the NCB every month.
''For example, Mr A can borrow from five banks, meaning that the data about him is held in different banks,'' Mr Niwat said. ''Once the information is sent from all the banks to us, we consolidate Mr A into one file. We will then have all credit information of that particular person.
''However, this applies only to credit but not for the deposit. For an individual we will keep the data for three years and for corporate clients five years.''
Mr Niwat stressed that their only role was to provide information and not make suggestions to a financial institution on whether or not to approve a loan.
''We don't have a blacklist as such,'' he said. ''The financial institutions prefer people who pay late to the ones who don't pay at all. However, the financial institution might still refuse the loan despite our positive data, depending on other factors like regular income which means the capability to pay back.''
The not uncommon practice of a customer with a poor credit record changing their name by deed poll is fruitless. ''Regardless of the name change, we can still trace everyone by their 13-digit ID card number,'' Mr Niwat said. ''You can change your name, but not the ID number which every Thai gets when they are born. You can't hide.''
THE FUTURE
In the second quarter of this year, the NCB will launch a new service which will enable customers to access their credit information by making a request via an ATM machine. The information will be sent by registered post. ''Moreover, in the second part of this year, we will launch a scoring system that classifies borrowers with credit scores ranging from 300 to 900 points,'' Mr Niwat said. ''I believe that at least 50% of those listed on the database will score over 700 points, meaning a good customer.''
He advised that customers should cooperate with banks if they are having problems. ''They don't compromise. If the client has a financial problem, I would suggest you talk and ask them to reschedule or refinance the loan. Banks prefer customers who come and talk to the ones who disappear. When they call you, don't hang up. Talk to them and explain your problem and try to work a way out of the difficult situation.''
Face to face with a loan shark
In an ordinary two-storey townhouse in Bang Yai on the outskirts of Bangkok, Mr Pak is preparing to do business with someone he believes is another willing customer who has fallen on hard times.
Inside his "office" on the ground floor there isn't much except a grey, dilapidated sofa, four wobbly wooden chairs, a table, an ancient refrigerator and a 16-inch television.
Mr Pak is one of the many loan sharks operating around the country, providing ready cash for people who have fallen foul of, or have never had access to, the formal financial system. He lends a minimum of 2,000 baht, but the figure can reach as high as 15 million baht. The usual amount his clients borrow is 3,000-5,000 baht, and the busiest time is often before the new school terms in May or June.
"I will lend to anyone because of the high profit," says Mr Pak, who claims he has a wealthy backer. "I can't remember when I last refused a loan.
"I don't care and I don't want to know what my customer will do with the money. This is up to them. I now have 36 clients and there's no problem with them, but I have some bad customers from time to time."
Accompanied by one of Mr Pak's old customers, a low-ranking government official, this reporter recently met Mr Pak under the pretext that I was a potential new customer. My companion made the introduction and did some interpreting. He doesn't really agree with how Mr Pak earns his living, and later gave some additional information about the operation.
During our meeting, Mr Pak, a middle-aged Thai man who spoke some English, was friendly and even smiled on occasions, which was in contrast to six young male "employees" who looked rather serious and unwelcoming. After a while, four of the men left on two motorcycles parked outside the house.
Mr Pak said that several foreigners with Thai spouses who lived in the area sometimes took out short-term loans.
"We don't have any designated area," he said when asked if loan sharks had specific territories. "Anyone can come here and lend money. Anyway, when some of the other money lenders' customers move here, they have to come to collect money. I don't worry too much about them. I have many clients as I started the business 12 years ago.
"The business has been always good for me, especially during an economic crisis like it is at this moment," he said, adding that "the volume of lending has been the same for years".
His bread-and-butter customers are poor Thai families, and for them, securing the cash loans often depends on a referral from a trusted customer. For bigger loans, however, such as property, Mr Pak may ask for title deeds.
"As a guarantee - if it is a small amount, say, up to 10,000 baht - I need a personal verbal guarantee from a family member, for example, or nothing at all if it is an old customer," he said.
"For the large amounts, I need the original title deed, which I keep. I won't go with the client to the local land department, at least not yet. I won't accept anything else as collateral."
A typical loan is over 24 days. "The client must return the principal and interest at the same time," he said.
"With other types of loans you can have months or years to repay. There's no limit. I will collect the installments every day unless I have another special arrangement with my client. In fact, I like them to repay for a long time because I can charge more interest and make more money."
Interest charges range from 15% to 100%, depending on the amount borrowed and the repayment period. The longer the life of the loan, the more interest for Mr Pak.
"If the amount is large, I will make a contract with my clients. However, it won't say that I lent them cash, but that they bought some product from me, like rice or whatever, and they will pay for it in installments," Mr Pak said.
He said that in the majority of cases his clients pay their loans back on time. But what happens when they don't?
"Sometimes, if they pay for a long time and default, for whatever reason, if I get my principal back, I will do nothing against them. Of course, they will lose their credit, at least with me," Mr Pak said.
"When the debtor neglects the payment, I double the interest at first. If they still don't pay, I send my staff, including government officials I sometimes hire on a part-time basis, to watch them outside their home. We also photograph the debtor. This is to make them scared and force them to start paying.
"If this doesn't work, we write a note saying: 'You owe me money and you don't want to pay it back.' We paste it at the person's workplace; whether it is an office or a factory. This is to let everyone know and to embarrass them as well.
"If this is not successful, I will send my people, including officials, to their home and confiscate a cell phone, notebook computer, electrical appliances or motorcycle. In case they have nothing or run away, I will demand money from their relatives."
Mr Pak did not say if violence is used to recover bad loans, but one of his old customers later confirmed that Mr Pak had used violence in the past, but did not want to mention it to me so as not to scare me off.
Mr Pak said he employed six men to collect payments. "They ride motorcycles to the client's home. They are not really afraid to show their faces, but sometimes they wear a helmet with a dark visor to the job. They don't carry any weapons of any type."
He said he didn't collect money personally unless there was a problem. "Then I will go personally to their home or ask them to visit me at this house.
"I don't pay bribes to the police or other officials. Instead, I will only hire them to collect money or confiscate goods from the clients or their relatives," he said.
Loan sharks are rarely arrested as it is not easy to obtain evidence against them. People won't call the police because they are afraid of a conflict and usually some other arrangement is worked out between the loan shark and the client when repayments become a problem.
Loan sharks, operating in groups of five to eight people, are mostly Thais and Thai/Indians, with the latter having a reputation for being more friendly, reasonable and patient. The Thai/Indian loan sharks won't threaten people, but increase the interest instead. However, if there's a problem, they hire standover men to collect the money.
It was a relief to leave Mr Pak's office and his henchmen behind, albeit with the unpleasant thought that almost all of his customers are in desperate financial states with no one else to turn to.
The government is conducting a public relations campaign to stop people dealing with loan sharks. As part of the campaign they are trying to collate information on loan sharks and remove ubiquitous flyers pasted to electricity polls, telephone booths and advertising billboards all over Bangkok, which usually read: "If you need cash then call me on this number."
Despite their efforts, business is going strong for Mr Pak and his colleagues.
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