Enhance creditworthiness assessment for MSMEs? New experiences with new tools. Riccardo Ceci Rabat September, Session n.

Transcription

1 Enhance creditworthiness assessment for MSMEs? New experiences with new tools Riccardo Ceci Rabat September, Session n.

2 Index MSME Lending The MSME origination process The role of information Credit Risk assessment approaches Rating models and PD Credit risk mitigation and LGD Expected loss The Credit Management Platform Different strategies for different segments: some examples Practical exercises

3 1 Banks face challenges in determining whether they are dealing with good or bad SME credit demand Reduced Financing for SMEs Qualitative assessment Traditional warning systems are broken Lack of accurate, comprehensive information SMEs have been hit hard by the crisis given their strong dependence on weakened domestic markets and bank lending that is less available Bankers need to take a view on the prospects of the business The skills needed to make effective qualitative judgments are complex and different due to the crisis Many banks have lost personal relationships with their small-business customers due to the reductions in banks frontline staff After the crisis, the lack of such information raises the costs of assessing creditworthiness, making it impractical for banks to serve some SME Higher-quality, lower-cost information is a key to unlocking more sources of finance for SMEs 3

4 Acquire Govern Manage Collect Engage Originate Monitor Cross/ Up sell Retain/ Renew/ Limit Early Up/cross sell & Retain Late Assess Risk Comply Information & Analytics Know-how, insight and technology to achieve sound and optimized decision-making and compliant processes in every phase of the credit lifecycle 4

5 2 Application for credit SME Customer Data acquisition Origination Scorecards Evaluation Branch Manager Input of preliminary information Preliminary exclusions Minimum turnover ; product not in catalogue Negative internal data Negative public data Negative Credit Bureau data Quantitative data Completion of customer and application data Qualitative information Qualitative data Qualitative Assessment form Good Bad Borderline Identification of undesirable customers 5

6 Evaluation Final Decision ü? Good Bad Borderline Assessment of Guarantors and Guarantees Rating and Risk class assignment Automated decision Algorithm for calculating amounts grantable according to risk class Decision maker assignment (sales network, central credit dept,) Final credit Decision Base amount Risk-weighted amount Max credit limit ƒ cash flow turnover no. of reporting banks trade category form of credit Base amount * ƒ PD ƒ Risk-weighted amount * guarantee coverage - Collateral, Personal - LGD grade 6

7 3 Estimating the credit risk of a company requires monitoring of a variety of sources of information Public sources Financial Statement Fiscal Credit Bureau Commercial Payment Internal Info Historical/Just in time Historical Just in time Qualitative And, moreover: Macroeconomic Industry Forward Looking 7

8 Data Elements Description Source Proven usage in Morocco Principal data A look at the principal behind the business, including their credit histories. Public data/ Credit Bureaus Quantitative data Company profile data Financial statement External data Negative information (court judgment)) and structural data (age of business, industry sector, company structure) A review of obligor s financial position, as presented in recent balance-sheet or income statement External data on current and past credit performance Commercial Payment Information Public data Public data External providers (Credit Bureaus) Internal Credit data (existing customers) Retail data on the principal (C/A) Internal data on current and past credit performance Lender Qualitative data Qualitative inputs: industry sector, competitive positioning, management Questionnaire 8

9 4 3 Corporate/ Large corporate Medium Enterprises 100% 0% 100% Fundamental analysis (balance sheet, market prices) Qualitative analysis (management, industry sector) 2 Micro/Small Enterprises 1 Individuals 0% Behavioral analysis (internal + external data) 100% 0% 9

10 Unicredit Breakdown of data elements relevance New customers Existing customers Data elements Company profile & principal data Financial statement External data (Credit bureaus) Internal data (existing customer) Qualitative data Micro business Small enterprise Micro business Small enterprise The relevance of information in the Rating SME retail varies depending on the type of company/segment as well as in relation to the degree of knowledge of the customer. Credit Bureau is one of the main factor of model performance 10

11 Premier groupe bancaire du Maghreb Clientèle de détail Données source Données signalétique et d opération Données de bilan Données de credit bureau Données interne marche du compte Données de interne de comportement Qualitative data TPE (avec et sans bilan) Professionnels Professions Libérales ü ü ü Automatically integrated in the rating system ü Not integrated in the rating system; used in policy rules 11

12 4 1 Pure judgment Low on sophistication, low on data. Relies upon subjective assessments, with no model or template. 2 Expert System Little data exists, but underwriters have sufficient experience to develop a set of rules or model, that can be used either to drive or guide decisions. 3 Hybrid models Data availability varies. A combination of model types is used. Outputs from different statistical, and possibly expert, models are integrated into a single model. 4 Statistical models High on sophistication, high on data. This method assures more reliable predictions. 12

13 Amount of data High Low Credit Risk assessment-model Types Low Policy Expert models Pure judgment Hybrid models Statistical models High Level of sophistication Profit per deal High Low Sovereign Project finance Corporate Low Volumes and profits Statistical Medium enterprise Judgmental Small business Individuals High Volume of deals 13

14 Counterparty 4 Corporate 3 Medium Enterprises 2 Micro/ Small business Rating models Judgmental (understanding why?) May use partial scores as part of the final assessment but the scores have a limited impact un the final rating Requires expert raters because the assessment is strongly influenced by opinions Longer to issue Really forward looking Mixed (a controlled flexibility) Scorings have a major impact on the final result but a collection of soft information is requested (qualitative questionnaire) Can be used by trained analysts Faster than a judgmental but not completely automatic Leave to the analyst a role in the final result Statistical (the power of numbers) Scorings have an almost complete impact on the final result Can be used by junior analysts Leverage on huge / deep empirical evidence Faster (completely automatic / require filling an application form) 14

15 Quantitative data (automatic sourcing) Qualitative data (questionnaire) A B C Données source Données signalétique et d opération Données de bilan Données de la marche du compte Données de D Comportement risque/produit TPE Professionn els Professions Libérales Weight: 50% 1. Hotels 2. Farming 3. Materials Transversal 4. Retail trade 5. Professionals 6. Manufacturing 7. Wholesale trade Tailored 8. Transportation 9. Building Companies 10. Residuals 11. Start-up Weight: 50% PD TPE =f (A,B,C,D) PD Prof =f (A,C,D) PD ProLib =f (A,C,D) Quantitative rating Integrated rating Qualitative rating 15

16 The the ability to reduce the risk of credit exposure of a guarantee depends on: - Market value of the guarantee (at the moment of default) - Time required for recovery procedures Personal Guarantees Collateral LGD = Loss Given Default (secured) Recovery Flows Recovery Cost Flows Time Interest rate 16

17 Not only PD and LGD but one last element EAD = Exprosure At Default EAD * PD * LGD = Expected Loss Considering the expected loss cost ensures a balance in economic and financial management of the bank 17

18 EVA(*) like= Revenues Cost of risk (EL) EVA>0 Focus risk mitigation (increase collateral) Focus Growth (increase exposure) (*) EVA= Economic Value Added EVA<=0 Focus risk management (reduce exposure; close relationship) Focus repricing High risk Rating Class Low risk SME decisional model can be based on Company and transaction information to be able to issue a rating (PD) Additional rules to determine the final decision: Cost of risk or expected loss (EL) is willing to assume 18

19 5 All the above information must flow into the Credit Management Platform (CMP) which must be structured taking into account to ensure: Availability Navigability Adaptability Shareability Storability CREDIT DATAWHEREHOUSE CMP Rating / Scoring Tools Monitoring Tool Decisioning Tool Workflows Tool Collateral Tool Collection Tool 19

20 6 MSME Micro Dimension Branch Manager Task 1 Check customer presence in the Black List Task 2 Non scorable firm Origination Score PD Low PD Medium OK Task 3 Task 4 Check guarantess values Input of preliminary information PD High KO Preliminary exclusions More 50% OK Less 50% KO 20

21 Branch Manage r MSME Small Dimension Task 1 2 Check customer presence in the Black List Rating calculation Task 3 Instrumental Mortgages Task 4 LGD calculation LOW EL LOW PD LOW EL MDM PD LOW EL HIGH PD OTHER CASES OK LP OK HP M A N KO Input of preliminary information Preliminary exclusions Other technical forms Task 5 LGD calculation LOW EL MEDIUM EL OTHER CASES OK LP OK HP KO 21

22 2 Processus Input OCTROI Output COMPORTEMENT Segments : TPE & Professionnels 4 Dictionnaires de données 50 Règles d acceptation Règles exclusion Crédit Bureau Nature garanties Segment client 6 Modelés de notations f Partie signalétique/ opération/bilan Partie marche du compte Partie Comportement 13 Questionnaires Qualitatifs Questions communes A qui? Réponses Depuis combien d années le A. Sous forme de personne morale depuis plus de 8 ans propriétaire ou les partenaires Au Client B. Sous forme de personne morale entre 2 et 8 ans travaillent - ils dans le secteur en tant qu entrepreneurs Questions communes? A qui? Réponses Depuis combien d années le A. En association A. Sous depuis forme moins de personne de 5 ans morale depuis plus de 8 ans Le promoteur propriétaire exerce-t- il ou seul les ou partenaires Au Client Au B. Client En association B. Sous depuis forme plus de personne de 5 ans morale entre 2 et 8 ans travaillent association -? ils dans le secteur tant qu entrepreneurs Questions communes? A C. Seul qui? Réponses Depuis combien d années le A. le client A. recourt En association A. Sous rarement depuis forme à son moins de personne entourage de 5 pour ans morale depuis plus de 8 ans financer son activité Est-ce que Le l entourage promoteur propriétaire du exerce-t- client lui il ou seul les ou partenaires Au B. Client le client Au B. fait Client En appel association B. de Sous manière depuis forme répétitive plus de personne de 5 à ans son morale entourage entre pour 2 et 8 financer ans travaillent permet de bénéficier association - d avantages? ils dans le secteur Au Réseau tant qu entrepreneurs Questions communes? son activité par A le biais de petits prêts personnels financiers et commerciaux? C. Seul qui? Réponses Depuis combien d années le A. le client A. recourt En association A. Sous rarement depuis forme à son moins de personne entourage de 5 pour ans morale depuis plus de 8 ans financer son activité Est-ce que Le l entourage promoteur propriétaire du exerce-t- client lui il ou seul les A. ou partenaires Le promoteur Au B. Client le client est Au B. un fait Client En client appel association B. exclusif de Sous manière depuis forme notre répétitive plus de personne agence de 5 à ans son, a morale souscrit entourage entre à une pour 2 et 8 financer ans travaillent permet de bénéficier association - d avantages? ils dans le secteur Au Réseau grande variété son activité des produits par le de biais la banque tant qu entrepreneurs? de petits prêts personnels Dans quelles financiers conditions et a commerciaux eu lieu? Au Réseau B. Client ancien, réalise C. Seul des opérations ponctuelles avec notre agence y cette demande de prêt? compris la présente A. le demande client A. recourt de En crédit association rarement depuis à son moins entourage de 5 pour ans financer son activité Est-ce que Le l entourage promoteur du exerce-t- client lui il seul A. ou Le en promoteur Au B. Client le client est B. un fait En client appel association exclusif de manière depuis notre répétitive plus agence de 5 à ans son, a souscrit entourage à une pour financer permet de bénéficier association d avantages? Au Réseau grande variété son activité des produits par le de biais la banque de petits prêts personnels Dans quelles financiers conditions et a commerciaux eu lieu A.? Il est propriétaire seulement de son logement personnel Au Réseau B. Client ancien, réalise C. Seul des opérations ponctuelles avec notre agence y Est-ce que le cette client demande détient des de prêt? B. En plus de compris son logement la présente A. personnel, le demande client il recourt de est crédit propriétaire rarement à d autres son entourage biens pour financer son activité Au Client biens immobiliers? Est-ce que l entourage immobiliers du client lui A. Le promoteur B. le client est un fait client appel exclusif de manière de notre répétitive agence à son, a souscrit entourage à une pour financer permet de bénéficier d avantages Au Réseau grande variété son activité des produits par le de biais la banque de petits prêts personnels Dans quelles financiers conditions et a commerciaux eu lieu A.? Il est propriétaire seulement de son logement personnel Au Réseau B. Client ancien, réalise des opérations ponctuelles avec notre agence y Est-ce que le cette client demande détient des de prêt? B. En plus de compris son logement la présente personnel, demande il de est crédit propriétaire d autres biens Au Client biens immobiliers? immobiliers A. Le promoteur est un client exclusif de notre agence, a souscrit à une grande variété des produits de la banque Dans quelles conditions a eu lieu A. Il est propriétaire seulement de son logement personnel Au Réseau B. Client ancien, réalise des opérations ponctuelles avec notre agence y Est-ce que le cette client demande détient des de prêt? B. En plus de compris son logement la présente personnel, demande il de est crédit propriétaire d autres biens Au Client biens immobiliers? immobiliers A. Il est propriétaire seulement de son logement personnel Est-ce que le client détient des B. En plus de son logement personnel, il est propriétaire d autres biens Au Client biens immobiliers? immobiliers 1 Questionnaire commun 12 Questionnaires Spécifiques 20 Etats de reporting 22

23 1 2 3 Phases Case analysis Identification of strategy and actions Feasibility and impact study Description Analyze the case on the basis of the position of the specific counterparty: Check the position in terms of credit risk assessment, value creation (EVA metric), capital charge Identify the relevant data sources Define the business strategy to be adopted for the single customer identify possible set of risk and/or commercial actions Increase exposure Repricing Risk mitigation Reduce exposure Focus of the exercise Verify feasibility and impact of the selected actions on the risk and value metrics of the client 23

24 Customer Data ID XXX NAME: Alpha SA Industry sector Agriculture Legal Form Professional Risk & Value Data Rating: 2 (very good) Type of client Existing clients Loans ST: Loans LT: 0 Revenue=3000 Cost of risk= 90 RWA/Exposure= 63% Cost of risk/exposure= 0,1% 24

25 Customer Data ID XXX NAME: Beta SA Industry sector Construction Type of client Existing clients Loans ST: 0 Loans LT: Legal Form Small Business with B/S Risk & Value Data Rating: 8 (weak) Revenue=2000 Cost of risk= 2900 RWA/Exposure= 119% Cost of risk/exposure= 2,9% 25

26 Customer Data ID XXX NAME: Delta SA Industry sector Retail commerce (bakery) Type of client New clients Legal Form Sole traders Risk Data Rating: 1 (excellent) Estimated Cost of risk/ Credit requested= 0,05% Loans ST: 0 Loans LT: 0 26

27 SOLUTIONS OF THE EXERCISES 27

28 Breakdown of data elements relevance Data elements Company profile & principal data Financial statement External data (Credit bureaux) Internal data (existing customer) Qualitative data Professional Agriculture Assistance of public subsidies Dimension of the area managed by the client Irrigation system Regularly export of the production Crops grown by the developer 28

29 Applicability Rationale Approval process Automatic process Short Time to action EVA>0 (= ) Increase revenue -->Opportunity to grow through: increased exposure to the customer at current/enhanced conditions increase cross-selling Risk management Risk profile of the customer does not justify specific focus Credit policy Growth and development 29

30 Breakdown of data elements relevance Data elements Company profile & principal data Financial statement External data (Credit bureaux) Internal data (existing customer) Qualitative data Small Business with B/S Industry sector: Construction Working with public administration Number of projects completed by the developer Type of construction Operating equipment (property/leasing/). 30

31 Applicability Rationale Approval process Manual process/competent authorization level Escalation in case of high risk Increase revenue Risk management EVA<0 (= ) Revise and change of client s credit structure Acquisition of additional collateral Credit line reduction Credit policy Review/discharge 31

32 Breakdown of data elements relevance Data elements Company profile & principal data Financial statement External data (Credit bureaux) Internal data (existing customer) Qualitative data Sole trader Industry sector: Bakery Shop location (center, shopping mall,..) Franchising activity (national, International,..) Number of employees Number of transactions. 32

33 Applicability Rationale Approval process Automatic process/no assignment of decision maker No Escalation Risk management Automatic approval Initial Credit line assignment-high credit line Opportunity for up/cross selling Credit policy Initial credit line assignment and renewal/review activities during account management phase 33

34 Take away Financing a firm means creating a relationship This relationship must be evaluated in three processes: origination, monitoring and (eventually) collection Evaluating the risk means evaluating the information The best method to measure risk of the firm is creating a rating system The PD is not the only element that give you a measure of the risk: you need to measure the quality of guarantees Combining the risk of default and the estimation of what you will lose in the event of default you ll obtain a synthetic statistical measure of the risk that is the expected loss SME segment can be highly automatized by well defined automatic strategies trough decisional and workflow software 34