Improving Credit Assessment and Information for SMEs in Europe to - - PowerPoint PPT Presentation

Brussels November 27, 2013 Joachim C Bartels Managing Director

Improving Credit Assessment and Information for SMEs in Europe to Facilitate Access to Finance

European Commission Workshop November 27th, 2013 Brussels, Belgium

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Brussels November 27, 2013 Joachim C Bartels Managing Director

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Credit Infrastructure

Percent of Enterprises in the EU: Source: EU

Capital Markets Bank and Trade Credit Consumer Credit

Risk Assessment Method Credit Rating Commercial Credit Information Credit Scoring Risk Management

Consumer Credit Information Credit Scoring

Business Universe % of Companies

Large Medium Small Micro

Mandatory Disclosure Industry standards based on best demonstrated practices Code of Conducts Credit Scoring Regulated by Basel II/III at the lending level Consumer Data Regulations Privacy Regulations Code of Conducts Mandatory Disclosure Ratings Regulations

Regulatory Aspects

0.2% 1.1% 6.5% 92.2% 41.9% 18.4% 18.5% 21.2%

Brussels November 27, 2013 Joachim C Bartels Managing Director

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Credit Infrastructure

Percent of Enterprises in the EU: Source: EU

Capital Markets Bank and Trade Credit Consumer Credit

Risk Assessment Method Credit Rating Commercial Credit Information Credit Scoring Risk Management

Consumer Credit Information Credit Scoring

Business Universe % of Companies Gross Value Added at Risk EURO in Percent

Large Medium Small Micro

Brussels November 27, 2013 Joachim C Bartels Managing Director

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Credit Infrastructure

Percent of Enterprises in the EU: Source: EU

Capital Markets Bank and Trade Credit Consumer Credit

Risk Assessment Method Credit Rating Commercial Credit Information Credit Scoring Risk Management

Consumer Credit Information Credit Scoring

Business Universe % of Companies

Large Medium Small Micro

• Lack of Mandatory

Disclosure

• Limited Data

Sharing

Key Issues

Data on the Business Data on the Owner

• Limited

Access

• Privacy Laws

Brussels November 27, 2013 Joachim C Bartels Managing Director

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Credit Infrastructure

Percent of Enterprises in the EU: Source: EU

Capital Markets Bank and Trade Credit Consumer Credit

Risk Assessment Method Credit Rating Commercial Credit Information Credit Scoring Risk Management

Consumer Credit Information Credit Scoring

Business Universe % of Companies

Large Medium Small Micro

• Broaden Mandatory

Disclosure

• Enhance Data

Sharing on Credit Performance

Potential Answers

Data on the Business Data on the Owner

• Credit

Performance

Blended Credit Score

Inte Interna rnati tional Commi mmitt ttee on Cred redit t Report rting

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ld Ban Bank T k Task askfor

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• n Cr

Cred edit it Inf nfor

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mation tion S Sta tand ndar ards ds

• General Principles for Credit Reporting (September 2011)
• 1. Data: relevant, accurate, timely and sufficient data – positive & negative -

collected on a consistent basis

• 2. Data Processing : Security and Efficiency
• 3. Governance & Risk Management
• 4. Legal and Regulatory Environment
• 5. Cross-Border Dataflow

Wor

• rld

ld Ban Bank Inte k Interna nation tional al Committe Committee e for

• r Cr

Cred edit it Rep epor

• rting

ting (ICCR) (ICCR)

• Identified Credit Reporting on Small and Medium Size Enterprises as a

Key area Requiring further Development to effectively Reduce Information Asymmetries – Improving SME’s Access to Finance

• ICCR identified major impediments
• ICCR identified nine possible actions for authorities and other policy

makers to address the identified failures

6 General l Pr Princip inciples les for Cr Credit it Reporting ing

Facilit acilitating SM ting SME Financ E Financing thr ing through I

• ugh Impr

mproved Cr ed Credit edit Repor eporting ting

• Impediments to Lending / Access to Finance
• Lack of Transparency – No Adequate Disclosure
• Lack of Credit History
• Owners Mingle Business and Personal Finances
• Diverse in Nature
• Difficult to Identify Clear Success Factors
• Lack of Financial Data – Consistent Reporting
• Weak Financial Management – Vulnerable to Credit Losses
• Asymmetries in Information Increases Cost of Credit

Assessment

• Independent Analysis (Rating) not Available and too

Costly

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Inte Interna rnati tional Commi mmitt ttee on Cred redit t Report rting

Facilit acilitating SM ting SME Financ E Financing thr ing through I

• ugh Impr

mproved Cr ed Credit edit Repor eporting ting

Inte Interna rnati tional Commi mmitt ttee on Cred redit t Report rting

Potential Actions:

• Broaden Data Sharing: To include all relevant parties

granting credit and institutions collecting data on SMEs

• Increase mandatory disclosure
• Public sector to raise quantity and quality of data collected
• n SMEs
• Public sector to assist in the identification of SMEs
• Public Sector: Access to data, reuse of data
• Comprehensive use of consumer and commercial data

(blended score)

• Regulatory oversight
• Cross border data transfer: Harmonization of standards
• Improve transparency of credit reporting

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Improving Credit Assessment and Information for SMEs in Europe to Facilitate Access to Finance

Source rce: FIC ICO

Guidelines for Financial Model Validation and Management (Credit Scoring)

• Have clearly stated credit policies
• Prepare suitable data example
• Ensure model segmentation transparency
• Choose the right model type
• Validate model effectiveness
• Defend decision strategies
• Monitor overrides
• Document thoroughly

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Should be part of best demonstrated practices at the credit granting / lending level

Brussels November 27, 2013 Joachim C Bartels Managing Director

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