International Bureau of Credit Histories

1
International Bureau of Credit Histories

• Principles of work
• Andry Kyyak (PhD), Head of Board, IBCH. KYIV June
  2007

2
Economic results background for banking sector
growth

• GDP of Ukraine.
• 1.01.2006 441 452 bln. UAH
• 1.01.2007 470157 bln. UAH
• GDP/person
• 1.01.2006 9372 UAH
• 1.01.2007 9678 UAH
• Average salary
• 1.01.2006 1019 UAH
• 1.01.2007 1277 UAH
• CPI 2006 11,6
• PPI 2006 14,1
• Exchange rate 1 USD-5,05 UAH

3
Bank system

• Quantity 166 banks
• The central Bank National Bank in Ukraine
• Concentration first 10 banks 60 of assets I
  system first 40 more 80 of assets in system

4
Most popular retail loans

• Auto loans
• Mortgage loans
• Loans in stores
• Credit Cards
• Loans for education

5
Retail loans boom

• GDP on 01.01.2007 470, 157 bln. UAH
• Rate of growth
• 2007 F 7
• 2008 F 7
• 2009 F 9
• Loan portfolio on 01.01.2007 245,5 bln. UAH
  (rate of growth in 2006 72,57)
• 2007 F 60
• 2008 F 50
• Retail loan portfolio on 01.01.2007 77 754 663
  bln. UAH (rate of qrowth in 2006 134,51)
• 2007 F 80
• 2008 F 80
• Mortgage loan portfolio on 01.01.2007 15 bln.
  UAH. (rate of growth in 2006 50)
• 2007 F 70
• 2008 F 70

6
Amount of applications (average) quantity of
reports credit reports market size (physical
persons)

• Mortgage market
• 8-10 of households can take mortgage loan.
  Estimated amount of 1 loan is 100.000 UAH.
  Average quantity of application on mortgage loan
  150.000 annually (2007-2008)
• Autoloan
• 15-20 of households can take auto loan.
  Estimated amount of 1 loan is 75.000 UAH. Average
  quantity of application on mortgage loan
  150.000-200.000 annually (2007-2008)
• Retail loan (consumer)
• Average quantity 6-7 mln. Annually (2007-2008)
• On 1.01.2007 the total quantity of reports (with
  consent of client) 5 mln.
• Taking into account the rate of growth of loan
  portfolios in 2009 on the market will be appr.
  17-18 mln (incl. more than 1,5 mln. Reports from
  credit unions segment). Positive Reports (1,5-2
  mln. negative reports).

7
Scoring
Perspectives of increasing of different segments
of retail market
60
Credits in the
shops
Credit Cards
50
Consumer
Auto
Mortgage
loans
Experts
40
forecasts of
Overdraft
increasing
30
during next
year,
Credits for
20
per 2007
education
10
0
1
2
3
4
5
6
7
Segments
8
Scoring
Perspectives of different segments for banks
Credits
Mortgagee
8,00
in the
Auto
Credit
Consumer
shops
7,00
credits
Cards
Credits
Overdrafts
6,00
for education
Experts
5,00
estimation of
4,00
perspectives
3,00
by scale 1-10
2,00
1,00
0,00
1
2
3
4
5
6
7
Segments of retail market
9
Average amount of credits (UAH)

• Auto - 53450
• Real estate - 265000
• As a rule 30 is down by individual and it is
  70 value of flat
• Credits cards - 5250 There are differences for
  credit cards for all and for borrower for car
  or real estate (15000-20000 Hrn)
• Credits at the shops - 6437,5
• Credits for education - 9500
• Consumer loans 6000-10000
• Depends from the notion Consumer loan in
  concrete bank

10
Average time for credit arrangements

• Auto 5-6 days
• Real estate11-14 days (Min4, MaxMonth)
• Credits cards 2 days (Min1, Max3)
• Credits at the shops 1-1,5 hours
• Credits for education 3-7 days Max7
• Consumer loans 3 days From couple of hours to 5
  days, depends from collateral

11
Why to cooperate with bureau in Ukraine

• Quantity of clients (physical persons) that never
  requested for credit more than 50
• Risk of default appr.15
• Commercial risk level of rejection average 35
• Rate of growth of bad loans in banking retail
  loans portfolio more than 100
• Bureau help to solve the problem with asymmetry
  of information and make the level of risk of
  default and rejection lower (5 and 10)

12
Legislative requirements

• Special Law About the organization of formation
  and reference of credit histories from Junes, 23
  th, 2005 2704-IV
• Licensing requirements were adopted by Ministry
  of Justice in 01.2007. (IBCH has the 1 License in
  Ukraine)
• The supervision requirements will be adopted by
  MJ of Ukraine in the nearest time.
• Cooperation with bureau and changing with the
  information from bank to bank is not the threat
  for banking secrecy (according to law)
• Credit bureaus have a special data protection
  requirement

13
Clients and Products

• Bureaus can cooperate with banks, credit unions,
  insurance companies
• Special source of information are state registers
• According to law bureaus can propose reports and
  scoring results

14
Variants of development Risks

• We examines the followings possible risks of
  success activity of bureau in Ukraine
• A financial risk - absence of necessary capital
  for operating activity
• A strategic risk - unfunctioning of the system
  uneffective connecting of partners
• An operating risk absence of work of personnel
  On a result

15
IBCH

• This year IBCH (1th half of 2007) plans to
  complete connecting to the followings state
  registers
• Register of prohibitions (real estate)
• Register of burdens (personal chattels)
• Register of enterprises of Ukraine
• Register of physical persons taxpayers
• Register of calculations for public utilities.
• Register of the lost documents (possibly, by the
  end of the year)
• It will help IBCH to become yet on a level higher
  than the competitors and to get additional profits

16
IBCH

• IBCH begins first from the bureau of Ukraine to
  inculcate the complex system of defence of
  information with parallel development of
  necessary internal procedures of defence of
  information (in 2007).
• It will help IBCH to purchase greater legal and
  transparent status at a collaboration with
  partners, registers.

17
Calculation of size of base of Partners
01.01.2006
01.01.2007
11,29 milliard UAH
31,83 milliard UAH
Pluses Growth of crediting 30 Minuses Presen
ce of permissions of borrowers 80 The same
borrower 20
The size of credit 11 thousand UAH.
1,493 mln. records

• On 01.01.06 the volume of credit portfolio of
  banks of partners and potential partners made are
  11,29
• billions UAH
• On 01.01.07 the volume of credit portfolio of
  these banks made are 31,83 billions UAH
• A size of credit is 11 thousands UAH
• 80 borrowers gave a consent on transferring of
  data.
• 31,83-11,2920,54 (billions UAH .) increase of
  portfolio. That makes about 1,867 million
  borrowers 80
• 1,493 mln. records.

18
Introduction
IBCH BUREAU OF CREDIT HISTORIES IS ESTABLISHED
IN UKRAINE BY THE THREE STRATEGIC PARTNERS

• CREDITINFO GROUP (CIG)
• TAS FINACIAL GROUP (TAS)
• NATIONAL ASSOCIATION OF CREDIT UNIONS OF UKRAINE
  (NACUU)

THE MAIN PURPOSE OF THE COMPANY IS TO PROVIDE THE
MARKET WITH STANDARD CREDIT BUREAU REPORTING
PRODUCTS AND SERVICES

• Credit reports with positive and negative data on
  individuals and companies
• Credit bureau scoring model with statistic score
  card
• In cooperation with CREDITINFO UKRAINE - credit
  risk management tools
• To multiply the profitableness of business of his
  founders, become an effective profitable project,
  to occupy the considerable segment of market.

19
Products and Services of IBCH

• IBCH works accordant governed requirements of Law
  of Ukraine About the organization of formation
  and reference of credit histories from Junes, 23
  th, 2005 2704-IV, with all of amendments and
  supplements, other legislative acts.
• Credit reports for banks, credit unions,
  insurance companies and other creditors (6 credit
  reports (identification/personal, negative,
  classical, universal, modified and insurance) -
  in a mode of real time
• Application and Credit bureau scoring
• Application processing
• Monitoring of clients for banks, credit unions,
  insurance companies and other creditors
• Debt management is the recommended technology of
  increase of efficiency of method and process of
  punishment of debts. Jointly with Creditinfo
• Information from state registers
• Assistance to Bank at adaptation of legal base -
  Contracts and applications on the credit - by
  inclusion of the coordinated text of the clients
  permission on transfer of the information to the
  Bureau assistance at development of internal
  provisions of Bank that regulate interaction of
  work process with a Bureau of Credit Histories
• Companies Database
• Other products, developed specially to order of
  our clients
• IBCH was the 1 companies, which created Expert
  scoring card that we proposed to our clients

20
Types of credit reports
BLANK REPORT IS REPORT ABOUT CLIENT WHICH INCLUDE
INFORMATION THAT ABSENT IN DATABASE OF CREDIT
BUREAU INFORMATION ABOUT THE AMOUNT OF QUERIES
SMALL ID INFO
NEGATIVE REPORT CONTAINS ONLY NEGATIVE
INFORMATION ABOUT CLIENT. THIS REPORT GETS THOSE
PARTICIPANTS OF BUREAUS WHICH DO NOT GIVE
POSITIVE INFORMATION FOR EXCHANGE
CLASSICAL REPORT CONTAINS IDENTIFICATION
INFORMATION, CURRENT NEGATIVE INFORMATION, AND
ALSO SHORT INFORMATION ABOUT DEBTS OF CLIENT
UNIVERSAL REPORT CONTAINS, BESIDES THE ABOVE
ENUMERATED INFORMATION, CURRENT STATUS OF CLIENT
ON PAYMENTS, ALSO INCLUDS HISTORICAL INFORMATION
AND INFORMATION ABOUT POSITION OF BORROWER AS
GUARANTOR OR CO-BORROWER
MODIFIED REPORT CONTAINS INFORMATION ABOUT OTHER
SUBJECTS, AND ALSO HISTORICAL INFORMATION ABOUT
IDENTIFICATION DOCUMENTS AND LOCATION
21
Reports and databases include
22
Price policy
The costs of credit reports are determined in the
dollars of the USA on an individual scale
To 2008 year scope prices on reports - Blank -
0.20 Negative - 4.0
Classical - 0.75 Universal - 1.5 Modified - 3.0
23
Stages of cooperation

• Signing of the Contract.
• Reception of the engineering specifications.
• To appoint the responsible persons from the
  Partner (IT-experts, experts on crediting and
  risks). Creation of working group in structure of
  experts of the Parties.
• Connection to a Program Complex of the Bureau
  (for work in a on-line mode).
• Creation of the communication module for work
  with system of the Bureau in a off-line mode.
• Formations of data for transfer to the Bureau.
• Testing of work of the system.
• To appoint the corresponding structural divisions
  and the personnel of the Partner to which duties
  will be assigned to provide cooperation of the
  Parties.
• Development of internal procedures for
  interaction with Bureau and their inclusion in
  own business-processes, acceptance of
  corresponding positions.
• The coordination and signing of the Contract for
  granting information services.

24
The order of introduction in Bank of work
technology with International Bureau of Credit
Histories

• Stage 1. The approval of the Order of Bank On
  introduction in Bank of the procedure with
  International Bureau of Credit Histories.
• Stage 2. Creation of group on introduction in
  Bank of work technology with IBCH and appointment
  of the Head of group.
• We recommend to include 4 or 5 persons in
  structure of group
• The representative of Department (management /
  department) retail crediting (it is recommended
  to appoint as the Head of group because the given
  Department will be, in the main , the consumer of
  IBCH services)
• The representative of Department (management /
  department) risk-management of Bank
• The representative of Department (management /
  department) information technologies
• IBCH representatives (the expert on work with
  Banks and the expert on information technologies).

25
A procedure of applying the technology of work
with International Bureau of Credit Histories
in banks

• Stage 3. Carrying out preparatory work in the
  bank for the beginning of testing of the work
  with IBCH, organization of testing and
  instruction in technology of working with the
  bureau of the corresponding bank employees.
• 3.1. Determination of the executive officers, who
  will be authorized to make inquiries ant to
  receipt credit histories of the bank clients
• 3.2. Determination of working places, where
  (technically) an inquiry and receipt of the
  credit history can be made
• 3.3. To determine, develop and adjust the
  technology of work with credit reports in the
  bank
• 3.4. To confirm regulations of work of the bank
  with IBCH
• 3.5. To develop the technology of preparation of
  information for forwarding it to IBCH, including
  the procedure of carrying the consent of the
  client to provide the data to IBCH
• 3.6. To develop and confirm instructions for the
  corresponding groups of the bank specialists
• 3.7. To provide instruction of the banks
  personnel, that takes part in the work with the
  bureau.

26
A procedure of applying the technology of work
with International Bureau of Credit Histories
in banks

• Stage 4. Experimental-industrial exploitation of
  the work of the banks system with IBCH (Period
  from 1-3 weeks)
• 4.1. Carrying out of the experimental-industrial
  exploitation of the system.
• 4.2. Drawing up a report on acceptance of the
  system to industrial exploitation with a list of
  remarks and defects (in the system, in
  technology, in documents), discovered during the
  work with system in experimental-industrial
  period and terms of revision and correction of
  this defects.
• 4.3. Drawing up a report on acceptance of the
  system to industrial exploitation.
• Stage 5. Approval of the banks order to apply
  the system of the work with IBCH to the
  industrial exploitation.
• Stage 6. To develop and confirm the technology
  and payment for the services of IBCH.

27
Sequence of work in front-office of the IBCH
system
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28
Scoring
Perspectives of increasing of different segments
of retail market
60
Credits in the
shops
Credit Cards
50
Consumer
Auto
Mortgage
loans
Experts
40
forecasts of
Overdraft
increasing
30
during next
year,
Credits for
20
per 2007
education
10
0
1
2
3
4
5
6
7
Segments
29
Scoring
Perspectives of different segments for banks
Credits
Mortgagee
8,00
in the
Auto
Credit
Consumer
shops
7,00
credits
Cards
Credits
Overdrafts
6,00
for education
Experts
5,00
estimation of
4,00
perspectives
3,00
by scale 1-10
2,00
1,00
0,00
1
2
3
4
5
6
7
Segments of retail market
30
Filling in a form for credit, written consent on
forwarding the information to the Bureau
Refusal in crediting, recommendation to have a
guarantor
Borrower
Giving a credit
Signing an agreement, written consent on
forwarding the information to the Bureau
Receiving of periodical payments from the borrower
Front-office of the Bank
Processing of the form, forming of documents
Risk-management
In the case of written consent
Following the internal procedures, a decision on
the further actions is made - to give a credit
at once, ?????? ? ????? ????????? ?? ????????, to
submit to a credit committee. Decision
no
Forwarding the identificator to the authorized
specialist of the IT department
Forming of file and forwarding the data to the
IBCH system
Forming of file and forwarding the data to the
IBCH system
Back-office of the Bank (IT department)
yes
Receiving of the data, analysis and report on
receiving
Receiving of the data, analysis and report on
receiving
Exit,search, receipt of the report
IBCH system
Questions on the work of the system
Readiness to help Partners on every stage of
crediting
Front-office of IBCH
Back-office of IBCH
Control over the receiving of the data, permanent
support of the users
31
IBCH market share

• On March 2007 IBCH had a 22 signed contracts with
  banks, credit unions and insurance companies
• Till end of the year IBCH will cover more than
  30 of market
• Till end 2008 more than 50 of market

32
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34
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36
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37

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