1. 1 1 st Credit Risk Management Conference December 2010 The Credit Cycle Leonidas Kotsaftis Director, Credit Risk Assessment Services ICAP GROUP

2. 2 Agenda  Business Financial and Payment Performance Outlook  Credit Cycle vs Credit Cycles  The Credit Cycle  The Cash Flow Pipe Line  The Credit Process  The Credit Management  Business Information Data  Credit Risk Evaluation  Receivables Management

3. 3 Source: ICAP Bulgaria DataBank - Identity + Commercial data for 1.200.000 Bulgarian Companies (Establishment, HO, Activity, Staff, BulStat, Management, Shareholders, etc.) - Balance Sheets for the largest 40.000 Bulgarian Companies (Assets, Liabilities, P&L accounts, 20 financial ratios, for 2007, 2008, 2009) - Daily Update for Identity + Commercial Data / Yearly update of B/S data - Peer group analysis based on basic Financial Accounts and Ratios - State of the art technological environment for on line dispatch of business info Business Financial Outlook

4. 4 This indicator is calculated on the basis of information provided by banks pursuant to BNB Ordinance No. 9 on the Evaluation and Classification of Risk Exposures (exposures past-due over 90 days, exposures past-due over 180 days and restructured risk exposures) Source: Bulgarian National Bank Business Payment Performance

5. 5 Credit Cycle vs Credit Cycles The Credit Cycle Management is a discipline by which an organization assess, controls, exploits, finance and monitors risk from all sources for the purpose of increasing the organization short and long term value to its stakeholders.

6. 6 Credit Cycle vs Credit Cycles Credit Cycles involving the access to credit by borrowers. Credit cycles first go through periods in which funds are easy to borrow: Lower interest rates, Lower lending requirements Increase in credit amount These periods are followed by a contraction in the availability of funds: Higher interest rates Strict lending rules Decrease in credit amount

7. 7 Credit Cycle vs Credit Cycles Credit cycles first go Through periods in which funds are easy to borrow. These periods are followed by a contraction in the availability of funds

8. 8 How can I …..

9. 9 The Credit Cycle

10. 10 The Cash Flow Pipeline Cash Share Owners Product Development MARKET CAPITAL MARKET Account Receivables The Cash Flow Pipeline Investments Operating Expenses

11. 11 INPUT OUTPUT INPUT OUTPUT CUSTOMERSCUSTOMERS SUPPLIERSSUPPLIERS Materials Products – Services Development Sales COMPANY The Credit Operation Process

12. 12 The Credit Process Marketing Business Development Credit Policy Monitoring Remedial Management Stage 1 Stage 2 Stage 3 Stage 4 Legal aspects Doc process Quantitative Relationship income Capital adequacy Qualitative Reviews Rev-approvals Enforcement of Guarantees Winding up Foreclosure Turnaround service Receivership

13. 13 Data is the key Client Prospects ………………………. Client Customers Market Lists + Studies Business Information Credit Ratings Probability of Default Credit Limits Credit Watch Behavioral Scores Portfolio Management ICAP Bulgaria DataBank

14. 14 Business Information Data Commercial Data Establishment Year Head Offices – Installations Activity (Sector, Nace, Products) Imports - Exports Import – Export Terms Trade marks Representations Staff Suppliers Customers Shareholders / Partners Board of Directors Affiliates / Subsidiaries Financial Data Projects / Investment Plans Banks Financial Data Balance Sheets - P & L Mid Term Accounts Financial Ratios Consolidated B/S Consolidated Mid Term Negative Events Bankruptcies and Bankruptcy Petitions Detrimental Items Dissolutions, Liquidations Work Suspension, etc. ICAP Bulgaria DataBank

15. 15 Credit Risk Evaluation 3 2 1 Higher Risk Decline or Cash Terms Commercial And Financial Information Application for Credit Automated Scoring Application Processing Business Decision Rules Medium Risk Analyst Review Low Risk Immediate Approval InformationScores Decision Rules Technology ICAP Bulgaria DataBank

16. 16 Receivables Management Services benefits: Reduce the time for the collection of debt and as a result the limitation of borrowing and payment of interest. Reduce the loss and legal expenses from bad debts. Improve customer management in collection matters with the aim to avoid conflict and related uncertain outcomes. Improve business competitiveness due to the reduction in borrowing cost and in the loss from bad debt. Receivables Management ICAP Bulgaria RM

17. 17 Credit Risk Indicator Credit Risk Evaluation Credit Watch Monitoring Pre-collection strategies Collection Strategy Credit Management Portfolio Management The Credit Cycle Management Marketing + Sales DivisionsCredit Policy + Strategy

18. 18 ICAP Credit Rating ICAP Bulgaria DataBank

19. 19 The Credit Cycle The biggest Risk in Risk Management is NOT seeing the Risk! Risk Management is everyone’s business, not just the CEO’s, CFO’s. Credit Risk Management is an integral part of Enterprise Risk Management. Recognize the Role of Credit Officers and Credit Risk Managers as Gate-Keepers of company’s Assets. “Dirty your Hands” going through event simulation process. Be familiar with PDs, EAD, Recover Rates, Expectation of Credit Losses and the quantitative side of risk measurement (Value-at-Credit-Risk)

20. 20 1 st Credit Risk Management Conference December 2010 The Credit Cycle Leonidas Kotsaftis Director, Credit Risk Assessment Services ICAP GROUP