Credit Bureaus as a Prerequisite of Healthy Development of the National Economy

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Credit Bureaus as a Prerequisite of Healthy
Development of the National Economy

• Lou Naumovski
• Senior Vice-President
• General Manager in Russia and CIS
• Visa CEMEA

Kyiv, Ukraine September 29, 2006 INTERNATIONAL
CREDIT BUREAU CONFERENCE
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Payment cards market development
Modern smart market of no-cash payments
Establishing of credit market
Beginning of consumer lending
Formation of new culture
Credit bureaus
Opening of accounts by people from the street
Scoring mechanism
Legislative framework
Growing interest in consumer lending
Abundant salary projects
Evolution
Expansion of retail network
Daily usage of Visa cards
Growing number of banks
First Visa Card issued
Entry into regions
Creation of acceptance network
Limited issue of cards
Some banks
1980 1998 2003 2005
2006
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Benefits credit cards give to

• Banks
• Reduced cost of servicing of extended credit
• Automated management and approval process
• Collection and analysis of information on
  clients behavior
• Keeping existing clients and possibility of
  cross-sales
• Clients
• Possibility to renew credit limit
• Credit cards are not tied to a particular store
  or purchase
• Benefits of well-developed acceptance network
• Retailers
• Higher spending capacity of customers and
  increased sales
• Stronger customer loyalty
• A tool of collecting information about customers
  behavior

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Factors driving growth of credit cards market

• Enabling legislative framework
• Banks targeting segments of client base
• Awareness of population
• Credit bureaus

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Value of credit bureaus

• Reduced credit risks of lenders
• Bigger volumes of lending
• Better liquidity of banks assets
• Better access of public and SMEs to credit
  resources due to differentiated and/or lower
  interest rates on credit
• Higher purchasing capacity of population
• Improved credibility of banking system
• Economic growth in the country

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Chronology of Credit Bureaus Development in
Ukraine

• August 2003 April 2005 Law of Ukraine On
  Organizing the Formation and Circulation of
  Credit Histories drafted
• 2 June 2005 foundation of the First National
  Bureau of Credit Histories Ltd.
• 6 June 2005 Ukrainian Bureau of Credit
  Histories Ltd. founded by PrivatBank registered
• 23 June 2005 Law of Ukraine On Organizing the
  Formation and Circulation of Credit Histories
  adopted
• 23 August 2005 CreditInfo Ukraine registered
• 6 October 2005 International Bureau of Credit
  Histories founded
• 16 December 2005 joint plan of IFC and Visa
  ????? to support development of credit bureaus in
  the region
• 23 December 2005 the Law came into effect
• December 2005 Ministry of Justice designated
  as Regulator of Credit Histories Bureaus
• September 2006 Ukrainian Bureaus of Credit
  Histories begin operating in full scope mode.

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Why quality, completeness and accuracy of data
are important?

• To-date, over 32 million payment cards have been
  issued in Ukraine
• Quantity of credit cards as of September 1, 2006
  is over 5 million
• By the end of 2007 the number of credit cards may
  reach from 10 to 12 million (each fourth
  resident of the country)
• Incomplete or inaccurate credit history may
  result in
• Unfairly turned down credit card applications
• Lower number of credit card users due to higher
  interest rate
• Lenders setting lower credit limits and fewer
  individual interested in usage of credit cards.
• Higher rate of defaults, more bad debts and
  reduced profitability of card business for
  issuing banks

?? ?????? ???
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Other countries experience Russia

• Credit cards market size
• Over 60 million payment cards issued to-date in
  Russia
• As of end of 2nd quarter 2006, quantity of credit
  cards (according to Visa)approximately 14
  million credit cards of all types, of which
• 12 million credit cards, were issued after
  repayment of consumer loan
• 2 million credit cards issued via bank channels,
• however up to 30 of these cards are inactive
  yet
• By the end of 2008 the number of credit cards in
  Russia may reach 25 million
• 1 of 4 bank cards will be a credit card
• 70 of cards will be issued as a reward for
  repayment of consumer credit, however, their
  portion will gradually decrease

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Other countries experience Russia

• Barriers to development of credit cards
• Public generally unaware of revolving credit card
• Poor education of clients and as a result low
  culture of credit usage
• Few credit histories
• Nascent credit bureaus

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Other countries experience Russia

• Areas for development
• Under the law, bank is obliged to submit
  information to a credit bureau
• client is not obliged to do so
• Bank does not have to work with more than one
  credit bureau
• as a result, no information exchange is
  effectuated
• In Russia, volume of non-payments in the first
  six months of 2006 has grown by more than 35 and
  exceeded 30 Bn roubles.
• This is explained by the prevailing majority of
  express-credits issued by retailers, and
• Impossibility to accurately assess
  creditworthiness of the borrower
• To-date, Russia has 64 registered credit bureaus

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Other countries experience Canada

• Legislative framework
• Provincial laws on reporting about consumers
  creditworthiness
• Federal and provincial laws on privacy
• These laws regulate procedure of collection, use
  and disclosure of personal information by
  businesses, and entitle consumer to access and
  correct such information

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Other countries experience Canada

• What is included into personal file of a Canadian
  
• ID information name, address, date of birth
  etc.
• Last inquiries (typically, for 3 last years)
• Payment history (for 6 years) positive and
  negative, maximum amount of credit, outstanding
  amount, name of lender etc.
• Public data (as a rule, for 6 years)
  bankruptcy, if any, courts awards, registered
  facts of foreclosure due to non-payment.
• Debt collection claims in favor of third parties
  (for 6 years)
• Clients statements (if any)
• Statements of victims of fraud (if any)

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Other countries experience Canada example of
Equifax Canada

• Basic operational indicators of Equifax Canada
• Total number of clients files/dossiers
  21,000,000
• Quantity of downloaded positions 100,000,000
  per month
• Annual accesses to dossiers hundreds of
  million (both in on- and off-line mode)
• Statistics of client information disclosures
• Total disclosures approximately 600,000/year
• Total follow-up telephone calls approximately
  420,000/year
• Total investigations in connection to disputes
  resolution approximately 35,000/ year

?? ?????? ???????? Equifax Canada
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Other countries experience South Korea

• As a result of 1997 crisis, GDP plummeted by 37
  from US520 Bn in 1996 to US325 Bn in 1998, and
  consumer spendings fell drastically
• Year 1999 saw the implementation and
  popularization of credit cards as a way to
  revitalize national economy and increase tax
  revenues
• Amount of spendings on credit cards grew up from
  US53 Bn in 1998 to US519 Bn in 2002
• Overall debt on credit cards boosted from US
  11.0 Bn at the end of 1999 to US57.5 Bn in 2003
• In 2003, nearly 25 of borrowers declared
  default
• Approach Everything at once led to the credit
  bubble

?? ?????? Lafferty Group, 2004
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Development of Lending in Ukraine

• Further development of legislative framework by
  making improvements to the industry law and
  having Ministry of Justice issue appropriate
  regulatory acts without delay
• Educate consumers in usage of credit and explain
  the importance of formation of a good credit
  history
• Launch all existing bureaus into full capacity
  operation (end of 2006 early 2007)
• Develop internal scoring systems with banks and
  use scoring bureau

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Steps to Develop Credit Cards Market

• Visa
• Assist banks in credit cards portfolio management
• Develop effective marketing programs
• Raise financial awareness of customers
• Work with regulatory bodies to improve legislation

• Banks
• Shift from credits in points of sale to credits
  on credit cards
• Active cooperation with credit bureaus
• Develop credit cards acceptance network
• Develop credit products of basic and advanced
  levels

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