Portfolio Risk Management the importance of decision support

Portfolio Risk Management: the importance of decision support system and of credit reporting Fabrizio Fraboni Director of International Division and Strategic Planning Warsaw, October 23, 2003 © 2002 CRIF Grou p

Table of contents The CRIF Group • The Importance of Credit Reporting • EURISC - the CRIF Credit Reference Bureau • Public and Business Information • The management of Decision Process • The Portfolio Monitoring © 2002 CRIF Group •

The CRIF Group • An European, private- and bank-owned company with headquarters in Bologna (IT). • Started in 1988 as the Italian Credit Bureau for the retail and small-medium business credit market (over 90% of market share). • Over 500 employees in 6 countries; extensive growth in terms of revenues and employees. • Leading European provider of information, decision systems, technology and consultancy to evaluate credit risk and develop marketing strategies. More than 200 scoring and decision solutions systems in 10 countries. • Banks, Financial Houses, Insurance Companies and Utilities are main customers. © 2002 CRIF Group •

The CRIF Group Offices in the U. S. , Mexico, UK, Germany, Czech Republic. Bologna Tampa, USA London, UK Hamburg, Germany Prague, Czech Republic Mexico City, Mexico © 2002 CRIF Group Information systems, decision-support models, outsourcing, software, consultancy and management solutions providing support to banks, financial institutions, service and insurance companies in every phase of client liaison. From strategic planning to the final acquisition and management of the client portfolio.

CRIF solutions can be integrated with the CRIBISNET Group offer • CRIBISNET Group provides worldwide integrated services of commercial information business & and credit Bologna & marketing reporting • Among their customers, there are 330 Bologna Tampa, USA Italian banks and financial institutions and companies Bologna, Rome © 2002 CRIF Group over 2000 Italian, European and US

CRIF Information Main Data Bases Voters’ Rolls Credit Application Data Protests and Court Judgements Surveys from Company Registry Frauds Land Registry Surveys Telephone Directory Lost and stolen Documents Balance Sheets © 2002 CRIF Group EURISC ØFinancial Statement positions from over 410 Subscribers Ø 25. 500 branches out of 29. 000 connected on-line every day Ø 42. 000 credit lines constantly updated Ø 81% of successful inquiries per year (Hit Rate).

CRIF Information • Germany: B 2 B Credit Bureau • UK: DB of Claims on Personal Injuries for the main English Insurance Companies • Skyminder: Business Information Aggregator (48 mln companies worldwide) • From 1999 partner of Trans Union for methodology and SW • JV in Czech Republic, Mexico and US • Scoring models for the following Credit Bureaux: • • • Schufa (Germany) ICB (Ireland) BIK (Poland) in progress Buro de Credito (Mexico) Serasa (Brazil) © 2002 CRIF Group • Czech Consumer Credit Bureau Decision Systems

CRIF Decisions Systems • Professional Team of about 90 consultants • ISC • Platform for the development and the monitoring of scoring models (DANTE ) • Projects for the IRS development • Offerings: üConsultancy üAutomation Systems for decision processes © 2002 CRIF Group üData analysis and modelling

CEE Focus at CRIF Strong CEE regional team The largest CEE dedicated team among all international decision solutions companies 3 CEE regional offices (Prague, Bratislava, Vienna); over 20 professionals focusing on the region Cooperations with local companies in 6 CEE markets; extensive collective knowledge of banking environment in the CEE markets. CEE specific activities Shared client databases: Insurance anti-fraud systems; non-banking client registers (leasing, telecommunications, utilities, etc. ) Scoring; credit process automation and consultancy projects (retail & SME) © 2002 CRIF Group Credit Bureau activities: CR, Slovakia, Romania, Croatia, Hungary, Bulgaria, Serbia

Credit Reporting Industry in Italy Eurisc Bankit 75. 000 Euro CRIC 30. 000 Euro © 2002 CRIF Group CRIC, Bankit db and EURISC provide credit risk information complementary and complete about a subject

EURISC - the CRIF Credit Reference Bureau • It is the most important Italian private credit reference system for all kinds of credit aimed to meet the information needs of : • Banks and Financial Institutions operating in the retail credit market • In connection with European Credit Bureaus © 2002 CRIF Group · Companies granting commercial credit

EURISC - the CRIF Credit Reference Bureau EURISC manages all kind of retail credit These are the types of credit that can be inquired: 3 Personal loans 3 Consumer credits 3 Credit cards 3 Mortgages 3 Leasing 3 Credit line on current account 3 Advance on current account (for import/Export) and bill discounting 3 Service account © 2002 CRIF Group 3 Factoring

EURISC: Hit Rate trend © 2002 CRIF Group Found 80 out of 100 subjects inquired

Volumes of Rejected credit stored in EURISC © 2002 CRIF Group Million Euro

© 2002 CRIF Group Percentage of contracts with delay in reimbursement in case of use or no use of EURISC

EURISC: benefits of complete information 1. By an accurate credit risk control, the Institution can extend its financial activity, aware of risk assumed. 1. Credit is fairly granted. 2. The System allows to prevent overindebtness. 3. Decisions about credit granting are not subjective. 5. Control of the “Credit Shopping” © 2002 CRIF Group 4. Overestimation of payment capability is avoided

The Global Online Information Solution An Integrated Solution INDUSTRY INFORMATION NEWS MARKET RESEARCH FINANCIAL COMPANY DATA EXECUTIVE PROFILES PUBLIC RECORD TABLES © 2002 CRIF Group COMPANY INFORMATION

CRIF Business Information Services Business and Reliability Area Services Failures, . . . Registry of Companies Protocol Financial Statements Prejudicial Information Rating Company Ownership Directors Board Other CRIF’s Data Banks © 2002 CRIF Group Protests

From the Credit Bureau … Output Branch Input Credit Bureau Applicant Id and Matching Codes, Number of Contracts, Global Exposure, Credit Behaviour, No. of Banks and Financial Institutions, … © 2002 CRIF Group APPLICATION FORM -------------

… to the management of Decision Processes Output PUBLIC DATABASES CREDIT BUREAU DATA & BUREAU SCORE BUSINESS RULES Branch Input Credit Bureau Database Integration, Policy Rejects, Credit Policies, Business Rules, Scorecards, Decision Matrix, … © 2002 CRIF Group APPLICATION FORM ------------- APPLICATION SCORE

Management of Decision Solutions Integration of different types of data and tools (scores, credit policies, etc. ) q Implementation of evaluation criteria tailored to meet credit grantors’ needs q Minimize organizational/IT efforts q Integration with internal evaluation systems KEY SUCCESS FACTORS © 2002 CRIF Group q

Application Processing Data Entry Custom designed Checks - mandatory fields - valid values - cross validation Data Acquisition Data Validation Response to the Clients Referral Applications Clients Individuals (Consumer) Small Companies (Small Business) Legal Entities (Corporate) Databases & Applications - Credit Bureaus - External Systems - Internal Databases Data Retrieval Decisions Results notification - E-mail - Letter - Contract print out Final Credit Decision - Automatic - Manual - Underwriting process Scoring & Rules - Scorecards - Policy Rules - Credit Strategies © 2002 CRIF Group Final Decision

The need for Portfolio Monitoring When a Credit Bureau provides tools, services and solutions for risk control and marketing development throughout the entire credit life cycle … … the need arises for: Ø Making comparison with the whole market: - market trends - benchmarks Ø Increasing confidence in the use of the decision systems © 2002 CRIF Group Ø Improving credit risk attitude

What to monitor? ØScorecard performance • Maintain predictive power ØPolicy rules • Dynamics of credit card utilisation Ø Demand Characteristics • Risk profile • Personal Profile ØResults of strategy execution • Acquisition and Portfolio Management function © 2002 CRIF Group Typical areas of interest ØCustomer behaviour • Risk of acquired portfolio

How to monitor? § Analysing portfolios from different vantage points § Understanding trends in advance § Evaluating dynamics to give the right priority to corrective actions Multi Dimensional Analysis © 2002 CRIF Group § Using ‘Key Performance Indicators’ to quantify business trends

The need for Portfolio Monitoring Micromarketing & Competitive Analysis ü Identifying market positioning (market share, comparative performance, trends …) ü Revealing valuable marketing opportunities (by credit demand, quality, market share) ü Identifying competitors’ strengths & threats SELECT VALUABLE & QUALITY PROSPECTS © 2002 CRIF Group ü Assessing market opportunities by branches/delivery channels

The need for Portfolio Monitoring & Query ü Analysing Portfolio performance (volume, bad rates, demographic characteristics, …, by branch/channel …) SELECT VALUABLE & QUALITY CUSTOMERS © 2002 CRIF Group ü Monitoring scorecard and credit policies (score distribution, stability of demand, overrides, performance, vintage analysis, …)

Conclusions Key Aspects • Richness of information: • Credit Reporting • Public and Business Information • Management of Decision Solution • The portfolio Monitoring • Improving credit risk attitude: • Understanding trends in advance • Development of effectiveness preventive actions © 2002 CRIF Group • Awareness of risk assumed

Thank you! Fabrizio Fraboni - CRIF, Italy © 2002 CRIF Grou p