. :

1
O. Kuzina, The State University-Higher School of
Economics
Credit card market in Russia
2
Market statistics on bank cards

• By the end of the first quarter 2005
• Number of cards
• 43 mln cards, number of cards per capita 0,4 36
  of adults have bank cards
  
• In 2001-2004 annual growth rate of the number of
  bank cards was 50
  
• VISA is in the lead with 18 mln cards,
• MasterCard - 11 mln
• Number of transactions
• 176 mln, 90 of transactions are cash withdrawals
  
  
• Volume of transactions
• 19 bln. dollars

3
Types of plastic cards available on the market

• Prepaid cards
• Debit cards without overdraft
• Debit cards with overdraft
• Revolving credit cards
• The term credit cards is here used for 3 and 4
  (debit cards with overdraft and revolving credit
  cards)

4
The number of credit cards
Number of credit cards - 2 mln, difficult to
estimate, some of them are issued but not
activated
5
Which banks issue cards in July 2004-Jan. 2005

• The largest plastic card issuers
• Sberbank (one third of the market),
• The Bank of Moscow,
• Gazprombank,
• Vneshtorgbank,
• Alfa-Bank and others
• One third of all plastic cards are issued in
  Moscow region.
  
• In the period of our survey only 30 banks did
  issue credit cards (out of 1500 banks in
  Russia)
  
• Only 2 banks from them were not Moscow banks.
• The biggest state bank Sberbank still have not
  issued a revolving credit card.
  

6
Growth of credits given to individuals, 1998100
In 2005 volume of credit to individuals was
almost 22 bln of dollars, 6 times bigger than in
1998
7
The collected data

• Secondary data from the Central Bank and
  Goskomstat
  
• Primary data - 13 interviews with bankers from
  different Moscow banks
  
• Either heads of the departments of risk
  management or vice-presidents of those banks
  
• The period of interviewingJuly 2004- Jan.2005
• Non-random sampling (self- selection) from those
  30 banks which did issue credit cards at that
  time.
  
• However, we have managed to get a variety of
  banks in our sample.
  

8
Sample description
9
The procedure of applying for a credit card

• Application
• Questionnaire (1-2 pages)
• Documents
• Passport and any other document
• Official income confirmation from the employer
• Other documents (a copy of work-book, or
  certificates of accumulated wealth)
  
• How long does it take to make a decision and
  issue a card from 20 min (Deltabank) up to 10
  working days in Citibank

10
What are the credit limits?

• In commercials banks advertise the following
  limits
  
• Citibank - 25 000
• Bank of Moscow, BIN bank, MDM-bank, Alfa-bank,
  Impexbank, Raiffeizenbank, Rosbank up to 10 000
  or euro
  
• Deltabank, Zenit up to 3 000
• Masterbank up to 5000.
• However, it is very difficult to get these
  limits.
  
• It depends on the level of personal income of an
  applicant (white as well as grey). An average
  income in Moscow is 700.
  
• Revolving credits - 200 of monthly incomes
• Debit cards with an overdraft - not more than
  100 (50-90)

11
How much does it cost for a consumer?

• Annual percentage rate may be more than 50,
  and banks try not to make it always clear for
  their clients .
  

12
The main problem - Uncertainty

• How to differentiate who is going to be a good
  client?
  

13
What are possible solutions?

• To give cards to regular customers the majority
  of population do not use banks
  
• To ask for a deposit money deposit does not
  make sense, non-financial pawns are not
  interesting for banks which are not pawnshops
  
• Guarantors who is going to guarantee the
  guarantors?
  
• To implement different restrictions (small
  credits for small periods of time) high costs
  per credit, not efficient
  
• Good borrowers are paying for bad ones the
  problem of adverse selection and growing rates
  of bad loans in the long distance
  

14
Strategies of credit checks in Russian banks and
pressures of the market

• All banks in our sample aim their credit checks
  to minimise defaults
  
• The main methods expert judgments, systems of
  rules, point systems usually in combination
  
• Scoring is not used though some banks consider
  their point systems to be scoring. Banks have not
  got enough statistical data for real scoring on
  their own
• The main aims of credit card program are
• either providing credit cards for their clients
• or increasing the market share
• Those who want to increase their market share
  employ the strategy of high APR.
  
• However, high rate of return attracts new banks.
  The growing competition reduces the APR and the
  periods of making the decisions, but not the
  risks.

15
Why overcrediting may occur in Russia?

• If good borrowers compensate for bad ones banks
  do not have incentives to collect debts cheats
  are not confronted
  
• In the absence of credit bureaus banks do not
  have information about other present credit
  obligations of applicants. The better the
  applicants characteristics are the higher
  his/her chance to get credit the problem of
  overcrediting of good clients
• When the real APR is 1.5 higher than advertised
  borrowers can reject to pay back since borrowers
  feel themselves cheated

16
Why do credit bureaus not function?

• The law on credit bureaus was passed in December,
  2004. It was supposed to take effect in September
  2005, but failed.
  
• What are the main obstacles?
• One big player (Sberbank)
• Banks do not trust each other
• Borrowers do not trust bureaus. Only 30 of
  borrowers agree to send their credit information
  to bureaus, the rest either refuse (40) or do
  not know (40) (Survey, September 2005)
• Russian banks do not want foreign bureaus to play
  the leading role on the market
  

17
Conclusions

• Market is now growing and many banks are focused
  on increasing market share.
  
• The strategy of good borrowers paying for bad
  ones which in the initial stage was successful
  has becoming outdated since the competition for
  market share forces banks to reduce the APR. The
  attempts of a single bank to hold on to high APR
  aggravates the problem of adverse selection and
  results in the growth of defaults.
• The scoring methods of credit checks can be
  utilised if the institute of credit bureaus
  becomes implemented. However, this process is
  delayed due to the low level of institutional
  trust among banks and market concentration.
• If nevertheless the institute of credit bureaus
  begins to work it will be one of the rare
  examples when rational calculation which is based
  on trust in institutions rather than individuals
  or networks finds its way into Russia.
• Otherwise the overcrediting of households seems
  to become unavoidable.