For a person that applies for a loan, there are a lot of things that they need to know. For one, how does the loan approval system work? Secondly, how would a bank know whom to give loans to? Thirdly, why would they give the loan to you and not someone else who also needs to buy a house or get another credit card or buy a car just like you?
Role of an eCIB in Pakistan
All standard loans issued to people or even companies require a credit assessment. Credit assessment is the bank’s selection or sorting process to decide which loan application would be the safest option to issue a loan to.
To assess who would be a better option out of the many people that apply for loans every day, there is a standard system in all financial institutions. The basic requirements for loan approval are to have
- A clean credit record.
- The level of your debt-to-income rate
These two are the main elements that determine the approval of the borrower’s loan application.
A clean record is checked through the eCIB report that is generated from the Credit Information Bureau (CIB) of the State Bank of Pakistan. The ‘e’ in eCIB is for electronic as it is generated online by accessing the SBP’s eCIB portal.
The eCIB is a summary of your behaviour as a borrower over time. Do you make your credit card payments on time? Do you pay your bills promptly? How much of your credit card limit have you used? Have you ever defaulted on a loan payment or a credit card payment in the last two years? Are all your older loans paid off?
Answers to all these questions sum up your eCIB report.
Reasons for the eCIB
The Credit Information Bureau gathers and organizes credit data on borrowers from its member banks. This financial data is then processed in its systems and the resulting information is sorted in the form of credit reports.
This information is then available online to the Banks for use in their loan assessment and loan risk management. The chief purpose of this system is to allow banks to know the credit history of their current and future customers. This leads to a cleaner loan portfolio for any bank and fewer defaults in the banking system.
The information from the Credit Information Bureau is central to the risk management of loans and the promotion of a safe loans culture in the banking system.
Having the State Bank run the CIB means that information submission is virtually guaranteed since the SBP is their regulator.
Types of Credit Reports
There are two types of eCIB reports in Pakistan:
Consumer eCIBs for Individual Borrowers
These Consumer Credit Report show the credit information of individuals/sole proprietors’ borrowers
Corporate eCIBs for Corporate Borrowers
The Corporate Credit Report reflects the credit information of public/private companies, firms/partnerships, corporations, and any other type of business.
The eCIB report has details about the status of funded & non-funded facilities and the amount of outstanding, overdue, write-off, and repayment history of the borrower.
Bear in mind that while an eCIB may be showing default, delays in repayments, write-offs, etc, it does not directly stop any bank from booking more loans against the borrower. The majority of the banks are allowed to make their own decision based on their internal credit (lending) policies and repayment capability.
However, the majority of the banks take eCIBs as a serious matter and do not issue loans to borrowers with poor repayment history, unless there is a genuine reason for the weak repayment.
The information contained in the eCIB is considered to be confidential, and not shared with the borrowers or any other party. This is mandated by law and eCIBs can only be shared between Banks and the SBP.
Credit Information Reporting for Consumer/ Individual Borrowers:
Once an overdue, or late payment, write-off, or waiver is reported in the eCIB, it remains reflected in the history section for two years even after getting a No Objection Certificate (NOC) is issued from the reporting bank.
Banks are only allowed to report loans data in their eCIB reporting and overdrawn accounts or nonpayment due to an internal system or human errors are expected to be resolved so that their borrower does not suffer because of their internal issues.
Similarly, in the case of car loans, where the financed car is stolen or met an accident, they are not allowed to report a default provided the bank gets the insurance claim.
Banks are expected to review their borrower’s eCIB for prudent portfolio management and to see that their borrower is faring well with all their debt.
This means that if you default or delay credit card payments, your car loan officer (from another bank) may get in touch to see what’s going on with you and why your payment was reported.
How will a Bank Use an eCIB Report?
Every bank has its in-house credit (lending policy). This policy determines which loan applicant will get a loan approved or rejected. Most lending policies set risk levels and baselines for loan approval. For instance, one bank may approve car loans where the applicant is earning PKR 100,000 per month and has net monthly liabilities of 60,000. Another may require that you have free funds of at least 50%, i.e., max. liabilities of net monthly Rs. 50,000.
The information about the borrowings that you have at present will add up to your total debt. If this is too high and your pay is just going towards repaying debt, then the chances of you getting another loan is very slim. If you have less debt, and your repayments take up less than 30% of your paycheck, then your probability of loan approval would be high.
In the case of credit cards, the SBP has set maximum credit limits for individuals and if you already have 2 cards, you probably will not be able to get a 3rd one approved. Similarly, if you have had a couple of late payments, one bank may ignore it, since they have a criterion of 3 late payments. Similarly, another may reject the application because they only accept a max of one delayed payment.
Since the eCIB reports the status of all your loans and credit cards, all late payments and the details of your payment history will appear in the eCIB report. Even if you have cleared all dues, resolved any dispute, etc, the will reflect in your eCIB history for two years. The purpose is to make it easy for banks to assess if you are managing your current loans and if you can be allowed to borrow more money.
For a loan processing officer, having two identical loan applications with similar earning and borrowing details, but with one having a clean eCIB and another with a history of late payments makes the approval task easier. The applicant with a clean eCIB report would probably get their new loan approved, while the other applicant doesn’t.
What Can I do to keep a Clean eCIB Report?
It is very important to have a clean credit history as a borrower so that your eCIB report is clean. Most of us use credit cards and personal loan facilities. It is very normal to miss dropping off a payment check on time in life’s busy routines. While it doesn’t seem like a big deal, at the time but these small mismanagements affect your eCIB.
Many borrowers get an unpleasant shock when they go for a new loan like a car loan or a house loan or even a new credit card with good features and find that they are rejected due to poor financial management of their existing facilities.
Being financially responsible includes making all payments before their due dates to avoid late payment fines and reporting in eCIB. As a borrower you should ensure that you pay your installments on time, credit card payments before the last date, and utility bills on time as well.
Being financially responsible pays off in terms of getting your preferred loans approved, as well as saving you money in the form of fines and late payment penalties. It also allows you to keep your eCIB clean.
Bear in mind that all financial institutions have to send in eCIB reporting to the SBP every week. Any nonpayment, delayed payment will be reported, regardless of what any bank staff states. If your payment is delayed from your end it will be reported. If it was delayed due to bank staff’s error or some system error, then the bank can avoid reporting, otherwise, there is no way that you can avoid eCIB reporting your late payment.