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«Credit Histories Bureau: Risk Management, Product Range, Cooperation Regulation». CJSC «International Bureau of Credit Histories»

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Presentation on theme: "«Credit Histories Bureau: Risk Management, Product Range, Cooperation Regulation». CJSC «International Bureau of Credit Histories»"— Presentation transcript:

1 «Credit Histories Bureau: Risk Management, Product Range, Cooperation Regulation». CJSC «International Bureau of Credit Histories»

2 Копирование запрещено 2 RETAIL LOANS Auto loans Consumer goods loans Education loans Mortgage loans Credit Cards

3 Копирование запрещено 3 RETAIL LENDING IS BOOMING GDP as of 01.01.2006 reached 400 Bn UAH. Forecasted GDP growth: 2006 F – 3% 2007 F – 5% 2008 F – 7% 2009 F – 9% Aggregate Credit Portfolio of banks as of 01.01.2006 reached 157 Bn UAH. 2006 F – 35% 2007 F – 40% 2008 F – 40% Growth of loans to individuals as of 01.01.2006 reached 32 Bn UAH. 2006 F – 80% 2007 F – 80% 2008 F – 90% Mortgage financing market size as of 01.01.2006 is 10 Bn UAH. 2006 F – 50% 2007 F – 70% 2008 F – 70% Autolending market size as of 01.01.2006 is 6 Bn UAH. 2006 F – 70% 2007 F – 80% 2008 F – 80% Retail market of other lending as of 01.01.2006 ≈ 16 Bn UAH. 2006 F – 70% 2007 F – 80% 2008 F – 80%

4 Копирование запрещено 4 RISKS 50-60% of the total population have never applied for loans Risk of default (including anticipated losses) Risk of underreceived profit (average rate of failures 30-40%)

5 Копирование запрещено 5 NBU’s risk assessment methodology is Inefficient Following credit risk analysis methodology offered by NBU, a bank may only derive conclusions similar to the analogies below: Analogies: –Only black or white clothes –Very cheap or very expensive hotel –Shoes sizes 35, 40 and 45 only Due to this inefficiency, good clients may be “sifted out”.

6 Копирование запрещено 6 Parameters How many parameters to choose : –Initially, nobody knows which parameters are indeed significant. –Excessive number of parameters may negatively affect perceived evaluation. multicollinearity Time of questionnaire filling out –Too few parameters (less than 5) considerably impairs successful solution of objective. –A quick validation procedure should exist for parameters (verification and internal control). –Scoring enables accumulation of statistical data. But information thus received may be used for purposes other than borrower’s creditworthiness assessment.

7 Копирование запрещено 7 CREDIT BUREAU, SCORING A standard solution is based on the Expected Loss Rate (ELR) calculated as a result of two variables: Probability of Default (PD) and Loss Given Default (LGD): ELR = PD * LGD Conventional scoring systems classify clients by their default probability, beginning from those having the lowest score (with the highest likelihood of default) to the ones with highest score (with lowest probability of default) LGD scoring model adds to this rating new variables by means of similar classification of clients by their expected final loss rate in case of default. OPTIMAL RESULT MAY BE ACHIEVED ONLY WHERE THE PROBABILITY OF DEFAULT MODEL IS COMBINED WITH THE LOSS GIVEN DEFAULT MODEL

8 Копирование запрещено 8 Scoring of credit bureau Principally, there exist two ways of delivery of credit bureau scoring : –ON-LINE – Risk assessment on the basis of answers to inquiries to credit bureau followed by a credit report –GROUP OF REPORTS (OFF-LINE) – Risk Monitoring services; portfolio analysis; solicitations; previous reviews analysis A SPECIFIC TYPE OF SCORING IS CALCULATED ON THE BASIS OF HISTORICAL DATA, CONTAINED IN THE CREDIT BUREAU’S DATABASE. THIS IS THE MOST COMPREHENSIVE SCORING MODEL BASED ON A HUGE VOLUME OF DATA

9 Копирование запрещено 9 Types of Users «Absolute» partnership – Partners that deliver and receive both negative and positive data, «Extended» partnership – Partners that submit only negative information and receive both negative and positive data, «Partial» partnership – Partners that submit and receive only negative information. Data provider – is a partner of bureau which only provides data. Database Registries are both public and private registries which accumulate documented information.

10 Копирование запрещено 10 Hook up Procedure Stage 1 Closure of Service contract between a Partner/User and CJSC “International Bureau of Credit Histories” – 3 days Stage 2 Coordinate compatible technical formats, and rules and deadlines of information sharing with IBCH. If needed, do so in writing. Data collection, processing, update, transfer and storage procedures are subject to clause 4 of the IBCH’s bylaws. – 10 days Connection to the base and system in testing mode. If needed, preliminary analysis of a sample or entire database of the lender– 7 days Fill out and send to IBCH a special form with names and contacts of Partner/User’s employees designated to work with the Bureau. – 1 day NamePosition/titleContact phonee-mail 1Lender’s representative assigned to work with CHB 2Lender’s administrator 3Lender’s operator 4Operator -2 nOperator - n

11 Копирование запрещено 11 Hook up Procedure Log-in on the Bureau’s website or request the Bureau directly to install the system and make steps in accordance with the Information System Connection Regulation – 2 days Receive personal identification numbers (PIN) from IBCH’s designated person – 1 day Access system in testing mode – 3 days Work through the mechanism of data shipment to the Bureau (10% of the data base at the most), send inquiries and receive reports. If needed, formulate recommendations to the IBCH administrator on additional agreed modules for integration with the system of borrower’s assessment, adopted by the Partner/User – 10 days Stage 3 If needed, Lender’s employees (administrator, operator) may go through a short-term customized training in IBCH – 2 days Begin regular data transfer in secure mode.

12 Копирование запрещено 12 A lender receives 400`000 loan applications per year, which translates into 1`500 per day Of these, guided by business rules, management approves 70% - 1`050 loans Of 1`050 loans 15% are defaults or 780 good faith borrowers 450 refusals per day Average size of loan is 10`000 USD, average interest is 15% Annual income – 1`170`000 USD Underreceived profit – 675`000 USD p.a. 10% refusals, 1`350 approvals Sale of security, legal proceedings, collectors’ services cost 20`000 USD per year Total loss – up to 700`000 USD p.a. Of 1`350 loans 5% are defaults or 1`280 good faith borrowers Average size of loan is 10`000 USD, average interest is 15% Annual income – 1`920`000 USD Sale of security, legal proceedings, collectors’ services cost–7`000 USD per year 150 refusals per day Bureau’s services to identify 450 borrowers’ cards cost 185`500 USD per year Total Cost – 190`000 USD

13 Копирование запрещено 13 Rules and dates of data exchange with IBCH IBCH offers three options of data sharing : (КК - credit committee, ОДБ – banking operational day) Option 1. Lender’s headquarters Lender’s subsidiaries Under this option, IBCH closes agreements both with lender’s HQ and subsidiaries, as separate legal entities, and issues certificates to each. Both lender’s HQ and its subsidiaries may make inquiries and receive reports in real time mode. At the end of each workday, the lender and its subsidiaries send new and/or updated data to IBCH.

14 Копирование запрещено 14 Scoring Workflow BANK Leasing Company Credit Union IBCH WEB IBCH SERVER Info on borrower Data check Financial analysis Credit Scoring Credit limit Decision report

15 Копирование запрещено 15 Sample Basic Credit Report


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