Mongol Bank: Negative credit information cannot be modified easily
The central bank recently announced that it would be modifying negative credit information of 14,170 individuals to normal. Individuals that were late on their financial lease payments once were included in the omission of the negative credit information on the precondition that their debt was paid off before June 1 and they had no prior history of overdue debt.
Inspector D.Turbat of Mongol Bank’s Supervision Department sat down in a recent interview to discuss the exact details of the omission.
The negative credit information of 14,170 individuals was modified to normal in the loan database recently. In March, 41,000 individuals had their credit information modified to normal. Will these types of actions be a regular occurrence moving forward?
In order to increase the opportunity of individuals to receive banking and financial services, Mongol Bank modified the credit information of those who fulfilled certain preconditions. On August 1, individuals who possessed overdue finance leasing debt who paid off their debt before June 1 were included in this modification. This encompassed 14,170 individuals overall. Last year, 25,621 individuals had certain negative credit information omitted, and in March, 41,085 people were also provided with the opportunity to receive financial services equally. Many people are grateful for the action that Mongol Bank has taken in this regard.
The Mongol Bank loan database is serving its critical role as an important incentive for individuals and businesses to maintain financial discipline. The decision to modify credit information is very much dependent on current conditions. Therefore, as the macroeconomic performance of Mongolia improves and the economy stabilizes as a whole, the public must understand that the central bank will avoid these types of modifications moving forward. The central bank urges those taking out loans or other financial products to fully understand and plan out the risks, to have a specific goal in mind, and to have a drawn out plan on repaying the debt. Basically, the public cannot expect the central bank to take such actions every year.
How many individuals have negative credit information in the loan database?
We cannot disclose that information. In general, the conscious responsibility of individuals and businesses that loans must be repaid, the culture of lending, and over financial discipline has been improving significantly in the last few years.
The increasing aspiration of individuals and businesses to have a positive credit information has been noticed by the central bank. This is evidenced by the plethora of people who reach out to Mongol Bank trying to fix any negative credit information. Today, most people seem to have an understanding of what the loan database is, what it does, and what it is meant for. People have begun to realize that negative credit information is a significant obstacle in obtaining future loans.
Our loan database encompasses every loan that has been incurred by an individual or business. Currently, there are over 600 organizations that provide information to the loan database.
What is the rate of debt repayment like?
Even though the amount of overdue loans has increased, the rate of loan repayment stands at around 92 to 94 percent.
There are many debtors who have incurred significant financial damage due to taking out joint loans. Are there any leniencies regarding joint loans?
I wouldn’t say that joint debtors are victims exactly. Sometimes there are cases where joint debtors incur financial damage due to their principal debtors. Many people who take out loans as joint debtors do not have adequate revenue or collateral to incur large loans. There are cases where joint debtors negatively affect the credit information of principal debtors. In any case, when a principal debtor fully pays off a loan, the credit information of the joint debtor is erase from the loan database automatically.
In addition, a principal debtor can choose to opt out of a joint loan with a co-debtor. For example, say you join as co-debtor in my joint loan. I can get in touch with the bank or financial organization and file a request to remove any co-debtors.
In the event that a person has negative credit information in the loan database, is it possible to amend it? There are murmurs of people giving money to remove negative credit information. Is this true?
I have been working as an inspector for five years. This issue comes up regularly. It is not possible to amend negative credit information with money. Once the information is received by the loan database, it will not be erased. It will remain there. However, modification or renewal of information happens on a daily basis. One example of this is the central bank’s decision to omit certain loans. Generally, any modification or renewal of credit information is the responsibility of the lender.
In addition, the lender has a legal responsibility of providing correct information. As stated by the law, any information in the Mongol Bank loan database will remain there for 10 years. However, the lenders or commercial banks only have the legal right to use the last six years of information as reference for a potential loan.
For instance, if it has been six years since you paid your overdue loan, banks cannot access that information. So, if you paid your overdue debt in 2012, the banks cannot access this information for reference for a loan in 2018.
What are the classifications of the loan database? What is the most ideal classification to be in?
The loan taken out is classified depending on whether it is overdue or not in accordance to the asset classification, asset risk fund establishment and operation procedure approved by the Mongol Bank governor and the finance minister.
If paid within 15 days, the loan is classified as normal. Overdue repayment that has exceeded 90 days is flagged as needing attention. Repayment that has exceeded 90 to 180 days is abnormal, 181 to 360 days is classified as uncertain. Any overdue payments exceeding 361 days is flagged as a bad loan.
In what cases can credit information be modified at the request of the individual?
First, the debtor must make a formal request to the lender in accordance to the law. Mongol Bank will then consider the request and decide if it has any basis. Only if the loan has been paid off or the information is correct, will the information be modified. In addition, any court decision regarding modifications to the loan database must be enacted by the central bank.
...Loan classification is not about creating negative credit information about individuals but to prevent loan loss and create risk management fund to address nonperforming loans...
What if there are circumstances outside the control of a debtor that prevents them from paying their debt on time. Say a person takes out a salary loan and is late two days because their employer does not provide their salary on time? Will they be classified as having a non-performing loan?
A lender has the legal responsibility to classify loans into three groups, normal, overdue, and non-performing. Non-performing loans are classified as abnormal, uncertain, and bad. In accordance to the procedure of asset classification, being behind one to two days on repayment will not cause the loan to be classified as non-performing.
In addition, there are a lot of circumstances outside of the control of the debtor that might result in a day or two day delay in repayment. Due to this, loan classification is conducted two times a month. Therefore, it is not possible for a loan to be classified as non-performing if repayment is late one to two days. Any overdue repayment that exceeds 90 days must be classified as non-performing by the lender.
Loan classification is not about creating negative credit information about individuals but to prevent loan loss and create risk management fund to address non-performing loans.