Discussing chapter 18 on Microeconomic Theory Basic Principles and Extensions - Nicholson and Snyder book - regarding Asymmetric information a student raise an interesting point of view regarding the available information on credit utilization, defaults and so on. According to him, in Brazil, the information from each customer (e.g.: if he has already defaulted anytime during his life) is not available and this is also because banks do not want. He mentioned that banks would have to provide better prices and fees for customers with a good historical behaviour on the use of credit lines and bank products. However, I was thinking and if we consider the capital ratio of a bank, provisioning and other charges banks has to deal with due to the lack of information of their clients, there would be a trade off. And banks wouldn't have great benefits from this lack of information on customers behavior. Additionally, banks could charge a reasonable interest and fees from all customers even if they know the probability of default of the customer is low. How does this work in other countries? Is the student opinion reasonable?
Basel II opened the possibility towards "your individual interest rate" by allowing (and encouraging) banks to use more advanced methods of estimating Credit Risk, individualizing even, customer-per-customer, for example using Advanced-Internal ratings-based approach.
This means that the banks can lower interest rates towards clients that score better according to these presumably more sophisticated methods of credit risk assessment. They are not obliged to do so (to the degree that interest rates are determined by the interaction of market participants and not decided by the state). On the other hand, by making credit risk assessment more accurate, banks can select the customers with good credit ratings because this, in the end, lowers their overall credit risk exposure and ultimately, lowers also the obligatory capital that they must hold.
So indeed, individual credit rating and individual interest rates may increase the competition among firms and bring contractual interest rates down, reducing the banks' nominal profit rate -while it may keep intact the actual profit rate, since credit risk (and so, statistical losses) will also go down.
Moreover this may lessen the burden of capital reserves. In some cases (and I would say, in the current situation), banks may even care more about the latter than the former.