As financial market intermediaries, banks are, in their line of work, constantly exposed to credit risk, i.e. the risk of a loan applicant not being able to repay the granted loan or to repay it regularly. In order to minimize credit risk, banks have developed different internal systems, such as the lists of irregular debtors which were available for their own purposes and were only exchanged in a small number of cases in the inter-bank cooperation process.
The impossibility to obtain reliable information about credit indebtedness and credit history of a certain client implied higher risk for banks, which was, ultimately, transferred to the clients through the higher price of bank products, i.e. higher interest rates. This approach resulted in the indiscriminate allocation of resources, meaning that good and reliable debtors also had to take the burden of higher interest rates.
The development of the ASB Credit Bureau has been beneficial for all stakeholders in the banking market, and financial market in general. Through Credit Bureau Reports, bank clients can now prove their regularity in repaying debts and therefore achieve more favorable terms when applying for loans, whereas banks and other service providers reduce the risk entailed by their placements, thereby avoiding the burden of outstanding debt and non-performing loans in their balance sheets.