GOVERNOR of the Bank of Jamaica (BOJ) Brian Wynter says the establishment of a local credit rating bureau will have a greater effect on bank solvency than some of the macroeconomic issues being currently debated.

Wynter, who was speaking earlier this week at the Jamaica Stock Exchange’s Fifth Regional Conference on Investments and the Capital Markets, held at the Jamaica Pegasus Hotel — said there is no threat to the solvency of financial institutions following the announcement of the Jamaica Debt Exchange and other measures introduced by the Government to reduce its interest payments.

He said a better assessment should take into account industry specific structural reforms, one of which is the establishment of the credit rating bureau.

“That is an example of a reform that needs to be put in place and operationalised as quickly as possible, and I think there are many others,” Wynter said.

The BOJ Governor said credit bureaus would provide a mechanism for information on prospective borrowers.

He added this could assist banks and other financial institutions to more efficiently assess the risks of default and therefore lower the requirement for provision against bad debts.

However, he reminded the audience that the reforms could not be seen as a panacea because lending is inherently risky, even to other businesses which are also exposed to risks.

“There is always a risk that you won’t get it back,” he declared adding that a ‘recovery mechanism’ would be needed to deal with this possibility.

“Could we take a look at those issues of insolvency, the mechanisms and other such things? You know many countries have looked at such issues and there are many examples out there,” Wynter said.

He said the proposed Credit Reporting Bill would create a legal framework that would facilitate a credit rating bureau to operate in Jamaica, but that this is not an easy process to get done.

The Bill, which was tabled before Parliament over a year ago, seeks to establish a system which will oversee the sharing of customer credit information between specified bodies, as well as the licensing of a credit rating bureau. However, Parliament has yet to sign off on it because of disagreements about the interpretation of some clauses. Nevertheless, Wynter says this is an important issue to the banking sector because it would be an ‘industry specific structural reform’ to protect financial institutions.

“This is a subject we should be spending far more time on because it is not easy to know what to do. These are harder reforms than the debate we spend a lot of time on, such as macroeconomic variables,” Wynter said.