UKRAINIAN INDEX
OF EFFECTIVE INTEREST RATES
ON CONSUMER LOANS FOR INDIVIDUALS
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Publications for tag financial technologies

 

CREDITMARKET INDEX - UKRAINIAN INDEX OF EFFECTIVE INTEREST RATES ON CONSUMER LOANS FOR INDIVIDUALS

In the first part we discussed the staff fraud challenges. Today we will highlight situations when the financial institution managers create conditions favorable for fraudsters.

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The first part of Banking 2.0 focused on possible chances to improve the bank operation efficiency, customer loyalty, and, as a result, increase the profit by means of cooperation with another finance institution. Use of innovative technologies based on the concept of Open Finances allows distributing all participants’ functions beneficially within sales and financial services, as well as operational and crediting risks within such cooperation. Today we are going to discuss the issue of minimizing risks that arise from joining efforts with partners who are potential competitors of the bank.

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One of the most fundamental risks faced by any organization is the staff fraud. This problem is particularly acute within financial institutions.

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The new banking retail cycle starts. Has the financial retail field learned any lessons? Has the development strategy changed anyhow? How can we get closer to the customer?

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In the first part, I reviewed leading credit history bureaus operating in Ukraine. This part is focused on major problems on the credit history market and possible ways to solve them.

One of the major problems on the market is that banks do not submit information about their customers to credit history bureaus. Such approach compromises not specific banks in particular, but the credit system as a whole.

Many banks still believe that submitting credit history details of customers to a bureau may result in re-crediting of customers by other institutions. At the same time, some banks just do not see the point of wasting time and money to integrate their operations with a credit history bureau. What is the consequence of such practice? Applying for the new loan, a customer just forgets to specify other loans borrowed recently. As a result, financial institutions do not have proper information about current customer’s loans in the process of verification at credit history bureaus. So, a credit limit is calculated on the basis of information provided by a customer only.

Later on customers are unable to pay back their loans due to extensive financial liabilities, which results in bad debt on multiple loans (it stands to mention that the NBU reasonably advises banks to grant loans in the amount which monthly installments paid back by the customer do not exceed 30% of customer’s net income). A customer is more likely to repay the loan to the bank which debt collection department works more efficiently.

The NBU made an appropriate action by obligating banks to get an approval from customers to provide their debt recovery information to the credit history bureau. If the fail to do so, they are required to form reserves for loans without customer permit (unsecured loans). But unfortunately that’s where it is all ended; commercial banks receive clients’ permission, give loans, and…do not submit related details it to the credit history bureau.

In order to fix this situation, the NBU has to enforce banks to actually report to bureaus or form unsecure debt reserves, not only to get customers’ permission to share the information.

 

Accurate risk-management, effective IT solutions, reasonable sufficiency of the distributor network building – all these factors are useful for lending institutions at ordinary times. And moreover, in crisis they serve as a basis for ensuring business survival.

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I believe that the retail banking faces a number of challenges:
- a customer wants services (products) to be easily accessible. Customers don’t care where and how they can get it, but it must be easy and quickly. Besides, a customer requires proved warranties and service quality;
- a customer is able to compare. There are plenty of websites where financial institutions provide detailed information about conditions and requirements of service. There are special websites for financial service consumers.  New ways of gaining access to information deprive us of illusions of making a prospective customer visit our office and letting him get acquainted with our advantages;
- requirements to quality of risk management become. That’s why, verification and risk control services and the back-office have to be as more centralized, effective, specialized, and hi-tech as possible.

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I’ll try to describe in several articles the real situation on the market of credit bureaus in this country. In particular- in the market of credit history as it is.

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