Loan delinquency in banking systems: How effective are credit reporting systems?

The role of credit reporting systems in influencing bank loan delinquency has received limited attention in the literature. However, better credit risk assessment can help mitigate some of the informational asymmetries involved in credit extension and thereby ease the flow of credit by addressing the bad loan problem. In this context, I empirically examine the efficacy of credit reporting systems in tackling the bank loan problems. Accordingly, I combine the staggered timing of credit reporting system reforms across countries of Middle East and North Africa with bank-level data in order to analyze the impact of such reforms on non-performing loans. The analysis suggests that credit reporting system reforms leads to a decline in such loans by roughly 40 percent. These effects are driven primarily by reforms of private credit bureau as compared with public credit registry. The analysis also points to a differential impact on NPLs across bank business models and across countries with differing banking structures. Finally, the results show that the efficacy of credit reporting systems is much less compelling during crises.