iei october 2004 - all rights reserved - intrepid explorers, inc. - - 1 first china international...

IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 1

First China International Credit and Risk Management Conference

The Role of Information in Credit Risk Assessment

- A Global Perspective -

Presented by Joachim C. Bartels, CEO; Presented by Joachim C. Bartels, CEO; Intrepid Explorers, Inc.Intrepid Explorers, Inc.

at the First China Credit Management Conferenceat the First China Credit Management ConferenceBeijing, China; October 2004Beijing, China; October 2004


Agenda

• Credit & Information

• The Business of Information

• Information and the Business Cycle

• State of Information - A Global Perspective -


Discussion Topics

• Credit & Information are Intertwined

• A Historical Perspective


Investment in Information

Land Route: Land Route: ‘‘The Runner’The Runner’6 – 8 Months6 – 8 Months

• The Solution: The Solution: • Investment in InformationInvestment in Information

• InfrastructureInfrastructure• RulesRules• Security Security

• Information ….Rather than Spices

… • Demand & Supply • Pricing• Credit

• The Most Precious Good in the Arabian Sea in the 17The Most Precious Good in the Arabian Sea in the 17 thth Century? Century?

Round Trip Round Trip 20 - 24 Months20 - 24 Months


Commercialization of Credit Information

The USA in the 1830’s and 1840’s

Rapid Westward Migration of People and Trade

Limited Liability Concept- Corporation -

Systematic Collection and Distribution of Credit Information

Massive Financial Crisis• Bank Failures• Bankruptcies


Commercialization of Credit Information

Worldwide Acceptance of Credit Information by 1900Worldwide Acceptance of

Credit Information by 1900

• Credit Ledgers• Credit Ledgers

• Investigation• Investigation

• Most Famous Investigators

• Most Famous Investigators

The Internet

1970’s from Paper to Digital Information

1970’s from Paper to Digital Information


Agenda


• The Business of Information• The Concept of Information Pooling

• Data Sources

• Quality Norms and Standards

• Data Verification

• Data – Information - Knowledge


Information Suppliers ….

Capital Capital MarketMarketCapital Capital MarketMarket

Consumer Credit

Consumer Credit

Public Corporations

Large Privately Owned Corporations

Medium SizeBusinesses

SMEs

Professionals / SOHO

Private Individuals

Bank & Bank & Trade Credit Trade Credit

Bank & Bank & Trade Credit Trade Credit

Consumer Consumer Credit BureausCredit Bureaus

Consumer Consumer Credit BureausCredit Bureaus

Data-based User GroupsPositive & Negative

Payment InformationCredit Scoring

Automated Risk Prediction and Loss Prevention

Global Rating Agencies

Global Rating Agencies

Local Rating

Agencies

Local Rating

Agencies

Knowledge BasesKnowledge Bases

Expert SystemsExpert SystemsSoftware ToolsSoftware Tools

Manual AnalysisManual Analysis

b2b User b2b User GroupsGroups

b2b User b2b User GroupsGroups

Data Data SharingSharingCredit Credit

ScoringScoring

b2b Credit b2b Credit InformationInformation b2b Credit b2b Credit InformationInformation

Business DataBusiness Data

Credit Credit ScoringScoring

Monitoring Monitoring

Alert ServicesAlert Services


Concept of Information Pooling

Public Sector Private SectorBusiness Registers

Court System

News Media

Company News & Information

Trade Directories

Compulsory VoluntaryPrivate Sector Publications

Trade InformationTrade Information

Financial StatementsFinancial Statements

InvestigationInvestigation

Press Clippings

Product Information

RegisterDataRegisterData

Suits, Liens JudgmentsSuits, Liens Judgments

FinancialStatementsFinancialStatements

Database


Concept of Information Pooling

Public SectorBusiness Registers

Court System

Trade InformationTrade InformationLoan InformationLoan Information

RegisterDataRegisterData

Suits, Liens JudgmentsSuits, Liens Judgments

FinancialStatementsFinancialStatements

Database

• Credit Bureau – Closed User Group Concept

Private SectorUser Group

Credit PerformanceCredit Scores


D&B

Court SystemCourt System

Ministry of CommerceMinistry of Commerce

Department of RegistrationDepartment of Registration

Ministry of JusticeMinistry of Justice

Public Sector / Private Sector Partnership

Registrationin Thai and English

Balance Sheets BankruptciesAuctions

Turning Raw Data .... .... into Knowledge

• Thailand Example

Database


Accuracy, Reliability and Timeliness

DatabaseDatabase

Facts Versus Opinions Facts Versus Opinions

Credibility of the Source Credibility of the Source

Freshnessof DataFreshnessof Data

ExistingData

ExistingData InvestigationInvestigationVerificationVerification


Data - Information - Knowledge

Depth

Breadth

Time

UniverseDATADATA

INFORMATION

KNOWLEDGEKNOWLEDGE


Discussion Topics



• Information and the Business Cycle• Complexity of Risk is Growing - New Demands on

Information

• Trade Credit: Largest Source for Short Term Capital

• Credit Manager: A Custodian of an Important Asset

• Information Supporting Credit Decisions


Role of Information in Credit Risk Assessment

Business StrategyBusiness Strategy

Order Entry Order Entry Customer ServiceCustomer Service

Sales ChannelsSales Channels

MarketingMarketing

BillingBilling

AlertAlert

MonitoringMonitoring

Portfolio MgmtPortfolio Mgmt

WorkoutWorkout

FeedbackFeedback

RecoveryRecovery

Where to Start?

??


Information and the Business Cycle

BusinessBusinessStrategyStrategy

ShippingShipping


Sales Sales ChannelsChannels

Cash-flowCash-flowManagementManagement

MarketingMarketing

BillingBilling

Credit Management

External Information

Office Automation


Setting Standards

• Credit Terms

• Workout Rules

• Data Standards

• Data Integration

• Decision Systems


Order Entry Order Entry Customer Customer

ServiceService


MarketingMarketing

BillingBilling

AlertAlert



WorkoutWorkout

FeedbackFeedback

RecoveryRecovery

External Information Provider

• Advise

• Data Integration Tool Kit

• Decision Tools



AlertAlert



WorkoutWorkout

FeedbackFeedback

RecoveryRecovery


Sales ChannelsSales Channels

MarketingMarketing

BillingBilling

Building a Data Warehouse

Internal Data


Access to External Data


AlertAlert


Portfolio Portfolio MgmtMgmt

WorkoutWorkout

FeedbackFeedback

RecoveryRecovery


ServiceService


MarketingMarketing

BillingBilling

Data Warehouse

Data Warehouse

Data IntegrationValidation

??

Public Sector

External Data Sources

Private Sector

Internet

??


• Full Company Records

• Data Appending• Monitoring & Alert

Services• Portfolio

Management• Benchmarking

Access to External Data


AlertAlert


Portfolio Portfolio MgmtMgmt

WorkoutWorkout

FeedbackFeedback

RecoveryRecovery


ServiceService


MarketingMarketing

BillingBilling

Data Warehouse

Data Warehouse

Data IntegrationRationalization

External Data Sources

Private Sector Information Suppliers

Data Generic Generic Credit ScoresCredit Scores

Decision System

CustomizedCustomizedCredit ScoresCredit Scores


37%

13%12%

6%5% 4%

3%

11%11%

20%

8%

5%4% 4% 3%

13%

9%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

SERV RETL MANU WHLS CNST FINC REST TRNS Other

Numbers Dollars

Type of Risk• Risk Concentration: Industry / GeographyIndustry / Geography

% TotalPortfolio

% TotalPortfolio

Linkage to Incidents of Failure / Delinquency etc.


• Risk Profile - Credit ScoreRisk Profile - Credit Score

Magnitude of Risk?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5

Customer Universe

%Total %Total

PortfolioPortfolio

%Total %Total

PortfolioPortfolio

High Risk High Risk Low Risk Low Risk


Magnitude of Shift in Credit Risk?

0%

5%

10%

15%

20%

25%

30%

35%

1 2 3 4 5

Unchanged New Less Risky Riskier

%Tot a

l P

or t

f olio

%Tota

l P

or t

folio

%Tot a

l P

or t

f olio

%Tota

l P

or t

folio

• Risk Profile - ComparisonRisk Profile - Comparison


Agenda



• Information and the Business Cycle

• State of Information - A Global Perspective -

• Complexity of Risk is Growing

• Country Infrastructure and Attitudes Impact Information Availability

• Concerted Effort Required to Overcome Information Deficit


The State of Information

Cou

ntr

y In

fras

tru

ctu

reC

oun

try

Infr

astr

uct

ure

Cou

ntr

y In

fras

tru

ctu

reC

oun

try

Infr

astr

uct

ure

Information AvailabilityInformation AvailabilityInformation AvailabilityInformation Availability

The Good … The Good …

The Bad … The Bad …

And The Ugly … And The Ugly …

Finland

Indonesia


CreditInfrastructure Human

Resources

InformationInfrastructure

GovernmentLegal

Infrastructure

BusinessInfrastructure

Country Infrastructure Criteria

• TransparencyTransparency• Bribery and Bribery and

CorruptionCorruption• Parallel EconomyParallel Economy

• Central Bank PolicyCentral Bank Policy• Export Credit & InsuranceExport Credit & Insurance• Confidentiality of Financial Confidentiality of Financial

TransactionsTransactions• Legal Regulation of Financial Legal Regulation of Financial

InstitutionsInstitutions• Flow of Credit from Banks to Flow of Credit from Banks to

BusinessesBusinesses• Financial Institution TransparencyFinancial Institution Transparency

• Legal FrameworkLegal Framework• Justice Admin. FairlyJustice Admin. Fairly• Rights / Responsibilities of Rights / Responsibilities of

ShareholdersShareholders

• Communication AvailabilityCommunication Availability• New IT Meeting Business NeedsNew IT Meeting Business Needs• Data Security EnforcedData Security Enforced

• Transfer of Know-howTransfer of Know-how• Venture CapitalVenture Capital• Insider TradingInsider Trading• Cash Flow - Self FinancingCash Flow - Self Financing• Ethical PracticesEthical Practices• Credibility of ManagersCredibility of Managers• Credibility of Corporate BoardsCredibility of Corporate Boards• EntrepreneurshipEntrepreneurship• Adaptability of CompaniesAdaptability of Companies• Ease of Doing BusinessEase of Doing Business

• Economic LiteracyEconomic Literacy• Education in FinanceEducation in Finance• Worker MotivationWorker Motivation• Finance SkillsFinance Skills• Adaptability & Adaptability &

Flexibility of WorkforceFlexibility of Workforce


CreditAcceptance of the Concept of Information Pooling

BusinessAttitudes and Compliance

GovernmentAvailability of Information

LegalRequirement to Disclose

Information Availability

• Efficient Credit BureausEfficient Credit Bureaus

• Voluntary DisclosureVoluntary Disclosure

• Attitudes Towards Disclosure Attitudes Towards Disclosure and Transparencyand Transparency

• Reliability / Reliability / Accuracy of Accuracy of DataData

• Disclosure - SECDisclosure - SEC• Disclosure - Filing of FinancialsDisclosure - Filing of Financials

• Availability of Court RecordsAvailability of Court Records• Access to Court RecordsAccess to Court Records

• UCC Filings or EquivalentUCC Filings or Equivalent• State of Public RegistersState of Public Registers• Access to Public RegistersAccess to Public Registers• ComplianceCompliance


0

1

2

3

4

5

6

7

8

9

10


High

High

Low High

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Low

Source: IMD Source: IMD 2003 & IEI 2003 2003 & IEI 2003 SurveysSurveys

Cou

ntr

y In

fras

tru

ctu

re

Low

High

ColombiaColombia

BrazilBrazil

ArgentinaArgentinaVenezuelaVenezuela

MexicoMexico

Finland

Trend UpTrend Up

Trend DownTrend Down

The Americas

ChileChile

CanadaCanadaUSAUSA


0

1

2

3

4

5

6

7

8

9

10


High

High

Low

Low High

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Low

Source: IMD 2003 & IEI 2003 SurveysSource: IMD 2003 & IEI 2003 Surveys

Cou

ntr

y In

fras

tru

ctu

re

Low

High

S. AfricaS. Africa

Slovak RSlovak R

PolandPoland

Finland

Czech RCzech R

RomaniaRomania

RussiaRussia

HungaryHungary

TurkeyTurkey

SloveniaSlovenia

Trend UpTrend Up


No ChangeNo Change


0

1

2

3

4

5

6

7

8

9

10


High

High

Low

Low High

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10


Cou

ntr

y In

fras

tru

ctu

re

Low

High

China

Hong Kong

Indonesia

India

Singapore

Japan

Asia / PacificAsia / Pacific

Finland

Australia

Korea

Philippines

Malaysia

New ZealandTaiwan

Thailand

Trend UpTrend Up


Low


5

6

7

8

9

10C

oun

try

Infr

astr

uct

ure


High

High

Low

Low High

Low

High

6 7 8 9 10 6 7 8 9 10


France

Austria

Italy

Finland

Denmark

IrelandNetherlands

Sweden

Belgium

Spain

Portugal

Germany

Europe

Trend UpTrend Up


UK

Switzerland


Infrastructure &Attitudes …

• Underdeveloped Public Record InfrastructureUnderdeveloped Public Record Infrastructure

• Lax ComplianceLax Compliance

• Paper BasedPaper Based

• Poor Quality – Out of DatePoor Quality – Out of Date

• Difficult to AccessDifficult to Access

• Attitudes: Information is Secret!Attitudes: Information is Secret!

• Lack of Voluntary and Legal DisclosureLack of Voluntary and Legal Disclosure

• Little Enforcement of ComplianceLittle Enforcement of Compliance

• No TransparencyNo Transparency

• Reluctance to Accept Concept of Information PoolingReluctance to Accept Concept of Information Pooling


Summary

• The Imperfect World of The Imperfect World of InformationInformation

• Attitudes and Attitudes and Infrastructure Impact Infrastructure Impact Availability & ReliabilityAvailability & Reliability

• Complexity of Risk is Complexity of Risk is Growing Growing

• New Demands on Information New Demands on Information

• Overcoming the Overcoming the Information DeficitInformation Deficit

• Concerted Effort by Concerted Effort by Governments; Central Banks, Governments; Central Banks, Private Banking Sector and Private Banking Sector and Credit GrantorsCredit Grantors


Summary

Information & Decision Systems

Economy

Businesses

• More Stable Financial Sector• Economic Growth with Lesser

Need for a ‘Bail-out’ of Banks• Stabilizes Allocation of Capital

• Objective Assessment• Better Access to Credit• Quicker Reward for

Responsible Credit Behavior

• Accurate Risk Prediction• Can Lend to Broader Risk Segments• Pricing Reflecting Individual Risk

• More Accurate Information on Health of Financial Sector

Financial Sector

ConsumersBank

Supervision


First China International Credit and Risk Management Conference

Thank You

Intrepid Explorers, Inc. is not responsible for the use which might be made of the information contained in this presentation or report. Nothing in this presentation implies or expresses a warranty of any kind.

Presented by Joachim C. Bartels, CEO; Presented by Joachim C. Bartels, CEO; Intrepid Explorers, Inc. at theIntrepid Explorers, Inc. at theFirst China Credit Management ConferenceFirst China Credit Management ConferenceBeijing, China; October 2004Beijing, China; October 2004

iei october 2004 - all rights reserved - intrepid explorers, inc. - - 1 first china international...

Documents