VIRUS DE LA INMUNODEFICIENCIA HUMANA (VIH)

The theoretical literature explains that credit information sharing can reduce adverse selection, moral hazard (associated with borrowers) and hold-up problem as well as raising the discipline on borrowers’ debt repayment leading to an increase in bank lending and the reduction of default rate of individual borrowers (Jappelli & Pagano 2002; Djankov et al. 2007; Brown et al. 2009; Nana 2014). Consequently, bank loan portfolio (or credit risk) is potentially enhanced by credit information sharing.

For a given set of borrowers, we might expect that all else equal, credit information sharing would translate into lower bank risk. Pagano and Jappelli (1993) investigate the role of credit information sharing on reducing adverse selection in credit markets. They build a model where information asymmetries between lenders and borrowers lead to credit rationing. However, banks do not have the same degree of information about all borrowers – some banks are more familiar with one group of borrowers and other banks are more familiar with another group of borrowers. Sharing this information eliminates the information differences across banks, allowing them to make better judgments about lending to all borrowers. The improved information leads to more lending (Jappelli & Pagano 2002; Djankov et al. 2007; Nana 2014) and to lower default probabilities (Jappelli & Pagano 2002; Brown et al. 2009).

Additionally, Padilla and Pagano (1997) highlight another benefit from credit information sharing. They suggest that information sharing among banks can reduce moral hazard problem associated with borrowers by reducing rents that each bank can extract from superior information that is unknown to outside banks. In their model, banks can develop relationships with borrowers and can accumulate proprietary information about them. Using their advantageous position, banks can extract information rents by charging high interest rates. The high-interest rates reduce entrepreneurs’ incentive to exert effort and increase moral hazard by involving in asset substitution, where borrowers use the funds to invest in riskier projects, leading to greater default probability. We know that a fundamental principle of credit risk management for banks is to write covenants into loan contracts that restrict borrowers from engaging in riskier activities; by monitoring borrowers’ activities to see

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whether they are complying with the covenants and by enforcing the covenants if they are not, lenders can reduce or prevent the moral hazard behavior on the part of borrowers. With increased credit information sharing, it reduces the market power of banks to extract information rents, lowers moral hazard of borrowers and potentially reduces default probability.

Furthermore, the benefits of credit information sharing have been addressed by Klein (1992) as well as Padilla and Pagano (2000). In that framework, borrowers are more likely to repay their debts because information about defaults becomes available to all lenders. The threat of higher future interest rates or outright exclusion from credit markets is a strong disciplining device motivating borrowers to pay on time and in full. As a consequence of borrowers’ information sharing, the marginal benefit of monitoring necessarily declines implying a lower equilibrium level of monitoring effort by the creditors; however, with lower equilibrium level of monitoring effort but a greater probability of repayment, the overall quality of loan portfolio should be better.

Finally, Bennardo et al. (2014) also support the usefulness of credit information sharing. They argue that credit information sharing reduces the risk of over-borrowing as individual lenders can access information on the overall indebtedness of borrowers from all lending sources. This means that borrowers are less likely to over-borrow and end up default. It is obvious that when borrowers are over-indebted, they are unable to pay any amount to any single source of funds.

Summing up, all models support that credit information sharing helps reduce default rate and translate into lower bank risk by lowering adverse selection, moral hazard associated with borrowers, increasing debt repayment and reducing potential over-borrowing. However, it is possible that the credit information may result in higher bank risk. The credit information sharing may induce banks to provide loans to a wider (potentially riskier) set of borrowers. While credit information sharing lowers the default probability of the individual borrower and increase lending, it may also lead to greater access to credit for riskier borrowers. The disproportionally high entry of risky borrowers alters negatively the composition of the pool of borrowers leading to greater default rates on the aggregate level. Jappelli and Pagano (2006) make the same point. This effect will increase the average expected default rate in the bank’s portfolio.

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Recent theoretical research also shows that credit information sharing might be the cause of a banking crisis on the macro-level. In the model developed by Dell'Ariccia and Marquez (2006), as banks obtain private information about borrowers and information asymmetries across banks decrease, banks loosen their lending standards, leading to an equilibrium with deteriorated bank portfolios, lower profits, and expanded aggregate credit. Thus, the lending boom that is induced by a reduction in information asymmetries leads to a higher probability of a banking crisis. Also, Dell'Ariccia and Marquez (2006) argue that credit information sharing, when imposed by regulation rather than arising endogenously, leads to lower bank profits and greater banking system instability. Contrast to the theoretical model of Dell'Ariccia and Marquez (2006), Doblas-Madrid and Minetti (2013) empirically explore the consequence of lenders’ information sharing using unique contract-level data and find that lenders’ entry into the credit bureau does not stop the use of guarantees, suggesting that credit information sharing does not loosen lending standards.

Based on a theoretical point of views, it is still not clear-cut whether credit information sharing would increase or decrease bank risk. It may reduce the probability of default of individual borrowers and subsequently the risk of an individual one; however, the risk of the pool of borrowers may or may not be lower with more credit information sharing. Information sharing among banks may lead to a riskier pool of borrowers and loosen lending standard thereby result in higher bank risk and a higher incidence of the banking crisis. Thus, the conclusion cannot be drawn based on theory without empirical work.

Empirical work has provided evidence investigating the impacts of credit information with international and country-specific analyses including both macro-level and micro-level evidence. On bank-level data, several papers use micro-level data from individual countries to examine empirically the effect of credit information sharing. Consistent with the predictions of Pagano and Jappelli (1993), Padilla and Pagano (1997) and Padilla and Pagano (2000), Doblas-Madrid and Minetti (2013) find that credit information sharing reduces the likelihood of contract delinquencies and defaults, especially when firms are informationally opaque. In an experimental study, Brown and Zehnder (2007) show that the introduction of information sharing significantly raises repayment rates in a market where borrowers are mobile and relationship banking is not feasible. Houston et al. (2010) employ bank-level data and provide evidence that the existence and the depth of

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credit information sharing lower bank-risk taking behaviors and the probability of banking crises.

On the aggregate level data, Jappelli and Pagano (2002) show that credit levels are higher and default risk is lower in countries with credit information sharing. Büyükkarabacak and Valev (2012) as well as Houston et al. (2010) find that credit information sharing lowers the likelihood of banking crises. Both show that credit information sharing leads to an improved outcome not only on individual borrowers but also on the aggregate level.

Beside bank-level and aggregate-level, there is empirical evidence by exploiting contract-level data to clearly identify the impact of information sharing. Luoto et al. (2007) and De Janvry et al. (2010) analyze the staggered use of a registry by the branches of a Guatemalan microfinance institution. They find an increase in loan performance, especially for borrowers that are aware of the existence of the registry. Doblas-Madrid and Minetti (2013) focus on the staggered entry of lenders into a credit registry for the US equipment- financing industry. Entry improved repayment for opaque firms but reduced loan size. In a similar vein, Hertzberg et al. (2011) show how lowering the reporting threshold of the Argentinian credit registry resulted in less lending to firms with multiple lending relationships due to improved lender coordination. Lastly, Gonzalez and Osorio (2014) explore the impact of erasing negative borrower information from a Columbian credit bureau. Wiping out this information allowed borrowers to attract larger and longer loans from new lenders. However, the quality of these new loans was significantly lower than those of similar borrowers whose credit history had not been reset.

In summary, theory and evidence illustrates that credit information sharing reduces bank risk as a consequence of a reduction in information asymmetries (Pagano 1993; Padilla & Pagano 1997), an increase in the incentives for debt repayment (Klein 1992; Vercammen 1995; Padilla & Pagano 2000), a reduction in over-borrowing (Bennardo et al. 2014) and a reduction in default probability of borrowers on an aggregate-level (Houston et al. 2010; Büyükkarabacak & Valev 2012). Thus, we hypothesize as follows:

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