Opinion

How much information is required by a bank to assess its customer?

Banks and customers are often seen making an effort to insulate their information from each other. Bankers are trained to collect as much information as they can. It is often said that a good banker is someone who even knows the type of rice that his customer is currently living on. On the contrary, the customers want to win over the deal showing as little of their skin as they can. It appears that bankers and customers generally don't trust each other, though they get involved in a business of trust.

The question is, how much information is required by a bank to assess its customer? At the outset, secondary sources like NID, TIN or income certificate might suffice. However, the wheel of information cart needs to roll over because many things are likely to change in the course of time. For example, a banker might remain pretty satisfied that he has done the inquiry named KYC (Know Your Customer) quite successfully. However, he might need to stand in the dock for negligence of duty if the customer gets involved in fraudulent activities. While the newly introduced e-KYC promises to reduce the time of onboarding a customer from 4-5 days to 5-6 minutes, the risk of fraud remains.

Intensive care in sowing, ploughing, or watering is required for growing a good information crop. The Bangladesh Financial Intelligence Unit always inspires banks to build a bigger information silo. Meanwhile, a two-page "account opening form" was introduced last year in line with the National Financial Inclusion Strategy to make banking easier for customers. However, if the risk appears high, enhanced customer due diligence will be required based on risk grading. As such, banks often take on a strategy to collect information stealthily from third parties instead of disturbing the first party's information wall. 

To discover a glorious past civilisation, we often need to rely on the information inscribed on a small piece of coin. However, the challenge of the information-gatherer in the age of information technology is to find pearls from an ocean. People say that banks nowadays act like detectives. But bankers have to detect money laundering encompassing a long list of crimes which includes virtually everything under Section 2 (CC) of the Money Laundering Prevention Act, 2012.

In case of booking a customer, bankers sometimes need to rely on "insider information". Once I came to know that a big businessman was not satisfied with the service of his existing bank. Upon my persuasion, the customer applied for a takeover. The report from Credit Information Bureau was witness to his regular repayment behaviour. But why was he dissatisfied? I called a friend working in his old bank, who warned me: "Don't take him. He got entangled in legal disputes." I understood the reason and meaning of "dissatisfaction".

The concealment of information leads to adverse selection which is an old disease in the banking sector. In a study titled, "Nature and Magnitude of Adverse Selection of Bank Borrowers: Bangladesh Perspective", BIBM found that only 46 percent of the randomly selected bankers were satisfied with the availability and authenticity of the required documents regarding the establishment of a business, while the remaining respondents were in fear of adverse selection. To minimise the worries of adverse selection, banks turn to collateral. Because borrowers know more than lenders about the quality of the collateral, bankers can't escape the curse of adverse selection.

Banks live on different types of capital among which "information capital" is often neglected. Recently policymakers have decided not to destroy any information under the National Archive. Information of banks can be stored under this archive. Sometimes banks might be bankrupt. The archived information might save the customers managing other financiers for them.

Information is considered a sacred thing which is "not for sale" in our legal parlance. According to article 46 of Bangladesh Bank Order, 1972, banks are not entitled to disclose or transfer any complete credit information of borrowers. The chairman of NBR recently lamented in a pre-budget meeting that though they initiated the move to integrate information of owner of savings certificates, car, housing properties, etc., they failed to do so for the bank depositors, thanks to the Banking Secrecy Act. There is no formal information market in our country where information can be bought and sold. The Credit Information Bureau which monopolises our information market confines information to repayment history. Fortunately, we have a vibrant informal information market to fill in the gap. However, playing with information to secure vested interest is a common characteristic of this market.

Real-time information concerning audit findings, visit report, court record, passport validity, security, etc. should be included in the database of the central bank. Private sector credit information company may be given the license. A government supported card like Aadhar of India may be introduced which will include much more information than NID and will save the time of both bankers and their customers. The credit rating companies need to be rated while audit companies need to be audited. In the age of the Right to Information Act, customers deserve a right to know about their banks. The reputation of the banks will be at a low point if customers are kept in the dark about the details of their contracts. Mere compliance with the instruction of regulators to write the terms and conditions in the mother language is not enough. The banks need to ensure that the customers understand them.

 

Mohammad Kazi Mamun, AVP & Head of Branch, Bank Asia Limited.

Comments

How much information is required by a bank to assess its customer?

Banks and customers are often seen making an effort to insulate their information from each other. Bankers are trained to collect as much information as they can. It is often said that a good banker is someone who even knows the type of rice that his customer is currently living on. On the contrary, the customers want to win over the deal showing as little of their skin as they can. It appears that bankers and customers generally don't trust each other, though they get involved in a business of trust.

The question is, how much information is required by a bank to assess its customer? At the outset, secondary sources like NID, TIN or income certificate might suffice. However, the wheel of information cart needs to roll over because many things are likely to change in the course of time. For example, a banker might remain pretty satisfied that he has done the inquiry named KYC (Know Your Customer) quite successfully. However, he might need to stand in the dock for negligence of duty if the customer gets involved in fraudulent activities. While the newly introduced e-KYC promises to reduce the time of onboarding a customer from 4-5 days to 5-6 minutes, the risk of fraud remains.

Intensive care in sowing, ploughing, or watering is required for growing a good information crop. The Bangladesh Financial Intelligence Unit always inspires banks to build a bigger information silo. Meanwhile, a two-page "account opening form" was introduced last year in line with the National Financial Inclusion Strategy to make banking easier for customers. However, if the risk appears high, enhanced customer due diligence will be required based on risk grading. As such, banks often take on a strategy to collect information stealthily from third parties instead of disturbing the first party's information wall. 

To discover a glorious past civilisation, we often need to rely on the information inscribed on a small piece of coin. However, the challenge of the information-gatherer in the age of information technology is to find pearls from an ocean. People say that banks nowadays act like detectives. But bankers have to detect money laundering encompassing a long list of crimes which includes virtually everything under Section 2 (CC) of the Money Laundering Prevention Act, 2012.

In case of booking a customer, bankers sometimes need to rely on "insider information". Once I came to know that a big businessman was not satisfied with the service of his existing bank. Upon my persuasion, the customer applied for a takeover. The report from Credit Information Bureau was witness to his regular repayment behaviour. But why was he dissatisfied? I called a friend working in his old bank, who warned me: "Don't take him. He got entangled in legal disputes." I understood the reason and meaning of "dissatisfaction".

The concealment of information leads to adverse selection which is an old disease in the banking sector. In a study titled, "Nature and Magnitude of Adverse Selection of Bank Borrowers: Bangladesh Perspective", BIBM found that only 46 percent of the randomly selected bankers were satisfied with the availability and authenticity of the required documents regarding the establishment of a business, while the remaining respondents were in fear of adverse selection. To minimise the worries of adverse selection, banks turn to collateral. Because borrowers know more than lenders about the quality of the collateral, bankers can't escape the curse of adverse selection.

Banks live on different types of capital among which "information capital" is often neglected. Recently policymakers have decided not to destroy any information under the National Archive. Information of banks can be stored under this archive. Sometimes banks might be bankrupt. The archived information might save the customers managing other financiers for them.

Information is considered a sacred thing which is "not for sale" in our legal parlance. According to article 46 of Bangladesh Bank Order, 1972, banks are not entitled to disclose or transfer any complete credit information of borrowers. The chairman of NBR recently lamented in a pre-budget meeting that though they initiated the move to integrate information of owner of savings certificates, car, housing properties, etc., they failed to do so for the bank depositors, thanks to the Banking Secrecy Act. There is no formal information market in our country where information can be bought and sold. The Credit Information Bureau which monopolises our information market confines information to repayment history. Fortunately, we have a vibrant informal information market to fill in the gap. However, playing with information to secure vested interest is a common characteristic of this market.

Real-time information concerning audit findings, visit report, court record, passport validity, security, etc. should be included in the database of the central bank. Private sector credit information company may be given the license. A government supported card like Aadhar of India may be introduced which will include much more information than NID and will save the time of both bankers and their customers. The credit rating companies need to be rated while audit companies need to be audited. In the age of the Right to Information Act, customers deserve a right to know about their banks. The reputation of the banks will be at a low point if customers are kept in the dark about the details of their contracts. Mere compliance with the instruction of regulators to write the terms and conditions in the mother language is not enough. The banks need to ensure that the customers understand them.

 

Mohammad Kazi Mamun, AVP & Head of Branch, Bank Asia Limited.

Comments