UKRAINIAN INDEX
OF EFFECTIVE INTEREST RATES
ON CONSUMER LOANS FOR INDIVIDUALS
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Publications for tag risk management

 

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

Why it is not reasonable to authorize agents to sell credit products? Where do the worst credits come from? What’s the way of further agency network development? Denis Rakovsky, Sales Director at KreditMarket, is going to answer these questions.

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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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Today we may observe a heavy growth of car credits. First of all, it’s explained by the aggressive position of carmakers, auto dealers, and car importers. They promote credit accommodation activity of banks. Business activity revival is a wonderful thing. Have we learned all lessons from the past crisis?

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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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Active involvement in the race for extension of the unsecured consumer lending can force banks into tough mid-term financial losses. Guile of problems of this kind consists in the fact that apart from evident fraud cases (which are promptly tracked within strict operating processes), losses are recorded as late as six months after the expansion started, provided that banks have quite an enhanced risk management and tough monitoring of troubled debts on the intervals. We’d like to stress that credit portfolios are permanently growing after an active start, as a rule, and it’s a common error to estimate indices based on the portfolio in this crediting segment.

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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.

 

As we forecasted in mid-2009, recovery of the financial retail market started with short-term offers: cash loans, consumer credits and credit card overdrafts. The following stage was marked by a car loans growth and emission of credit cards with a limited function range. Recovery of the mortgage lending segment will occur at the last stage, because of unavailability of a sufficient amount of long-term investment on the market.

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Today, practically all experts stress the return to pre-crisis volumes of the consumer lending. However, very often, though hushfully, bankers speak of a very fast return of the full cost crediting or zero interest lending practice (in case of lending purchases in Technomarket shop). However, this growth can show its reverse side.

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