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How to Use Credit Bureau Data to Better Manage Retail Portfolio

Vasil Verulashvili

Head of Credit RiskBank of Georgia

January 2014, Tbilisi

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Contents

• Brief Introduction – Bank of Georgia

• How to Use Credit Bureau Data in Decision Models

• How to Use Credit Bureau Data in Different Processes

• In which Models Credit Bureau Data is Generally Used

• Summary

• General Benefits of Credit Bureau

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Brief introduction – Bank of Georgia

• JSC Bank of Georgia (LSE: BGEO) is the largest commercial bank in the country, with 34.1 % market share by total assets;

• The only Georgian company with credit ratings from all three global rating agencies: S&P: ‘BB-’, Moody's: ‘B1/Ba3’ (foreign and local currency), Fitch Ratings: ‘BB-’; outlooks are ‘Stable’

• JSC Bank of Georgia First and still the only entity from Georgia to list on the London Stock Exchange since 2006 (in the form of GDRs since 2006 and premium listing since February 2012, in FTSE 250);

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• JSC Bank of Georgia provids retail banking, corporate banking, wealth management, brokerage and insurance services to its clients;

• JSC Bank of Georgia serves more than one million customers through one of the largest distribution networks in Georgia, largest ATM network, self service terminals and a full-service remote banking platform and a modern call center;

Brief introduction – Bank of Georgia

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Contents

• Brief Introduction – Bank of Georgia

• How to Use Credit Bureau Data in Decision Models

• How to Use Credit Bureau Data in Different Processes

• In which Models Credit Bureau Data is Generally Used

• Summary

• General Benefits of Credit Bureau

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• Makes more complete picture of customer (other banks lending, public data);

• Supports responsible lending and reduces credit losses;

• Increases predictive power of scoring models;

• Increases lending opportunity of financial institutions;

• Increases access to credit for customers;

• Provides additional services, improves quality of lending processes;

General Benefits of Credit Bureau

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Credit Bureau in Georgia (CreditInfo Georgia) was founded in 2005 and played one of the most important role in developing of retail lending in Georgia, especially in Bank of Georgia;

CreditInfo Georgia is now the only credit bureau in Georgian market servicing banks, MFIs, insurance, telecommunication companies, etc…

CreditInfo Georgia provides efficient decision making tools as well as access to credit information databases.

General Benefits of Credit Bureau

Loan Portfolio Growth Rates (X) 2002 / 2005 2005 / 2013

Banking Sector - Total Loans 2.8 5.8

Banking Sector - Loans to individuals 2.1 9.5

Bank of Georgia - Total Loans 3.1 11.1

Bank of Georgia - Loans to individuals 2.8 12.6

Bank of Georgia - Unsecured Loans to individuals 4.3 22.5

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Contents

• Brief Introduction – Bank of Georgia

• How to Use Credit Bureau Data in Decision Models

• How to Use Credit Bureau Data in Different Processes

• In which Models Credit Bureau Data is Generally Used

• Summary

• General Benefits of Credit Bureau

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What are we looking for in Credit Reports?

• Current Liabilities:– Number and amounts of liabilities– Types of products– Monthly payment amounts– Number of banks– Collateral…

• Credit History:– Length of payment history– Delinquency status– Credit usage pattern– Products used…

• Inquiries;

• Court judgments, debtors records, tax obligations, salary check status…

How to Use CB Data in Different Processes

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How are we getting Credit Report?

• Through the Credit Bureau website

• Through the web service directly in application processing system Detailed information from reports can be summarized and used in calculations automatically, also shown in user forms when needed

• Through the web service in batch processes White list, Cross & Up selling

• Getting triggers from Credit Bureau Monitoring service Collection/Retention processes

How to Use CB Data in Different Processes

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Disbursement Area

Decision Making Area

Data Collecting Area

How to Use CB Data in Different Processes

IdentityVerification

Core System,Reporting DWH

CreditBureau

Calculations

SimpleValidation

Scorecards(App, Fraud)

CorrectionsPolicyRules

Accept

Reject

Refer

FinalDecision

Confirmation& Contract

CoreSystem

ManualUnderwriting

ApplicationForm

Sample flowchart of application processing and decision making process

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Contents

• Brief Introduction – Bank of Georgia

• How to Use Credit Bureau Data in Decision Models

• How to Use Credit Bureau Data in Different Processes

• In which Models Credit Bureau Data is Generally Used

• Summary

• General Benefits of Credit Bureau

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How to Use CB Data in Decision Models

ApplicationDetails

Internal Data

Decision Score

BureauScore

BureauData

Policy Decision

Internal Score

Score 1 Low Medium High

Low Decline Decline AcceptScore2 Medium Decline Accept Accept

High Accept Accept Accept

LOGISTIC MODEL

Choice 1.

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How to Use CB Data in Decision Models

ApplicationDetails

Internal Data

LOGISTIC MODEL

Decision Score

BureauScore

BureauData

Policy Decision

Internal Score

Choice 2.

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As well as better scores, policy rules can have a significant additional advantage!

How to Use CB Data in Decision Models

Stylized representation of uplifts

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How to Use CB Data in Decision Models

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How to Use CB Data in Decision Models

  GINI Ratio

Model A 40.81

Model B 44.06

Model A&B 48.30

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Contents

• Brief Introduction – Bank of Georgia

• How to Use Credit Bureau Data in Decision Models

• How to Use Credit Bureau Data in Different Processes

• Different Models Where CB Data is used

• Summary

• General Benefits of Credit Bureau

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• Loan Origination

– Decision model

– Fraud model

– Policy rules

– Pre-approvals

• Collection

– Collection scoring model

– Pre-emptive strategies

– When to sell Portfolio and at what price

Different Models Where CB Data is used

• Portfolio management

– Credit risk model

– Size of Wallet & Spend potential model

– Retention model

• Capital

– Provisioning

– AIRB capital model

– ICAAP

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• More precise approach compare to the simple (Policy based) decision making process

• Credit Bureau data based Scoring model is more predictive

• CB Score is very important parameter in decision making model

Result

• Better & Faster Decisions

Summary

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Q & A