FINANCE: The British Property Federation broadly supports the creation of a loans database as part of improved availability of commercial real estate data.
In its formal response to a Bank of England discussion paper on improving the availability of credit data, including a UK loans database, the BPF said it “envisages the creation of a database”.
However, it added: “Opinion among our members is currently divided as to how useful they would find it if it were publicly accessible.”
The database, which was one of the key recommendations in the A Vision for Real Estate Finance in the UK report, “would keep track of all lending to income producing real estate, regardless of the regulatory status, business model or nationality of the lender”.
It would promote “standardisation of data collection by lenders and may also help support a more stable provision of credit throughout the CRE cycle”, it added.
But as part of its response, the BPF said the benefits of data collection must outweigh the costs.
The organisation explained that “the requirements for reporting to the database should be proportionate, standardised, consistent over time and if possible based on an existing framework”.
It also added that only objectively measurable data should be included in a CRE loan database.
In relation to governance, the BPF said that both regulators and market participants should be included.
“While the regulator may ultimately own the database, it should share its governance with the CRE industry. The regulator must also have access to specialist CRE expertise to provide a qualitative view on the database information.
“The database itself may be operated by a specialist third-party provider.”
In its supportive stance of an improved availability of CRE credit data, the BPF said: “Regulators should have greater oversight of developments in the market in order to facilitate targeted and proportionate intervention.
“Better data may also help market participants to adjust their lending behaviour when risk builds up.
“However, the BoE must be clear as to what it wants to achieve through better availability of credit data; supporting credit provision and maintaining regulatory oversight are two tally different objectives for which different approaches are needed.”
It concluded that further consultation is critical in taking forward any proposals.
The BPF specifically noted “in its collection and oversight there is the potential for significant cost to the CRE industry”.
Questions include exactly what information the regulator needs to carry out its supervisory function, it said.
The Commercial Real Estate Finance Council Europe also submitted that a loan-level UK CRE database could deliver substantial market and regulatory benefits.
In its response to the Bank of England’s May 2014 discussion paper CREFC
Europe welcomed the creation of a comprehensive database as a foundational element for promoting a healthier, more liquid and more stable CRE debt market that poses lower risks to financial stability.
It said that provided regulators encourage interested market participants and observers to take an active role in developing the detail of the proposal, a loan-level database could deliver substantial market and regulatory benefits.
CREFC reasoned that from the market perspective, better quality, transparent data should encourage greater standardisation and consistency in loan documentation, improving market liquidity and making CRE debt a more credible investment proposition, particularly for indirect and passive investors.
From the regulatory perspective, access to timely reliable, comparable data is a necessary (albeit not sufficient) condition for good micro- and macro-prudential regulation, the organisation led by Peter Cosmetatos, said.
It added that if regulators have access to appropriate expertise (internally and externally), they will be far better positioned to manage the feedback loops between property and credit cycles effectively, enhancing the resilience of the financial system and the stability of capital flows.
It concluded that there is scope for a UK initiative in this area to set the standard for improved data quality and transparency in other markets and better data consistency and comparability internationally.
The creation of a loans database was one of the key recommendations in the A Vision for Real Estate Finance in the UK report produced by the cross-industry Real Estate Finance Group.
Cosmetatos is a member of this group and was the principal author of its final report.
The deadline for responses to the BoE discussion paper, Should the availability of UK credit data be improved?, is 29 August.
Two debt specialists, Paul Rivlin, co-founder of Palatium, and AgFe partner Natalie Howard, are expected to submit a response to the BoE criticising the idea of a loans database.
The duo claim that the idea has “no merit” and that there was no evidence that a database would produce useful information and that the set-up and running costs would be a burden on the industry.
