Early movers gain advantage in NZ transition to CCR
The New Zealand Comprehensive Credit Reporting (CCR) landscape has had longer to mature compared to the Australian CCR landscape, with many lenders in NZ sharing and using CCR data from as early as 2015. Currently, around 50% of consumer lending data is being shared by credit providers in New Zealand. However, even with the significant head start, some major lenders in NZ are still yet to begin the transition to CCR.
Analysis by Equifax has shown that those lenders not participating in CCR have suffered from increased adverse selection over the last twelve months, as participating lenders have become active in using the new information. Evidence shows that the average positive credit score (to which the non-participating lenders are blind) has decreased by around 15-20 points while negative scores have remained stable over the same period.
Because of the lag between loan origination and default, it is likely that the non-participating lenders will not have visibility of the increase in risk for up to twelve months. Equifax modelling on the impact of adverse selection suggests that default rates could increase by up to 25% (eg 1.00% to 1.25%) depending on the internal credit processes deployed by the lender.
This evidence from New Zealand reinforces the theoretic game theory analysis conducted by Equifax and reported in the Australian Banking & Finance Magazine in 2014.
Whilst adoption of CCR has been slower than expected in Australia, the evidence from the New Zealand market shows that early movers can still gain a relative advantage, whilst laggards are exposed to a heightened risk of adverse selection.