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Transcript of 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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 2
Agenda
• Credit & Information
• The Business of Information
• Information and the Business Cycle
• State of Information - A Global Perspective -
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 3
Discussion Topics
• Credit & Information are Intertwined
• A Historical Perspective
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 4
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 5
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 6
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 7
Agenda
• Credit & Information
• The Business of Information• The Concept of Information Pooling
• Data Sources
• Quality Norms and Standards
• Data Verification
• Data – Information - Knowledge
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 8
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 9
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 10
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 11
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 12
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 13
Data - Information - Knowledge
Depth
Breadth
Time
UniverseDATADATA
INFORMATION
KNOWLEDGEKNOWLEDGE
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 14
Discussion Topics
• Credit & Information
• The Business of Information
• 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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 15
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?
??
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 16
Information and the Business Cycle
BusinessBusinessStrategyStrategy
ShippingShipping
Order Entry Order Entry Customer ServiceCustomer Service
Sales Sales ChannelsChannels
Cash-flowCash-flowManagementManagement
MarketingMarketing
BillingBilling
Credit Management
External Information
Office Automation
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 17
Setting Standards
• Credit Terms
• Workout Rules
• Data Standards
• Data Integration
• Decision Systems
Business StrategyBusiness Strategy
Order Entry Order Entry Customer Customer
ServiceService
Sales Sales ChannelsChannels
MarketingMarketing
BillingBilling
AlertAlert
MonitoringMonitoring
Portfolio MgmtPortfolio Mgmt
WorkoutWorkout
FeedbackFeedback
RecoveryRecovery
External Information Provider
• Advise
• Data Integration Tool Kit
• Decision Tools
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 18
Business StrategyBusiness Strategy
AlertAlert
MonitoringMonitoring
Portfolio MgmtPortfolio Mgmt
WorkoutWorkout
FeedbackFeedback
RecoveryRecovery
Order Entry Order Entry Customer ServiceCustomer Service
Sales ChannelsSales Channels
MarketingMarketing
BillingBilling
Building a Data Warehouse
Internal Data
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 19
Access to External Data
Business StrategyBusiness Strategy
AlertAlert
MonitoringMonitoring
Portfolio Portfolio MgmtMgmt
WorkoutWorkout
FeedbackFeedback
RecoveryRecovery
Order Entry Order Entry Customer Customer
ServiceService
Sales Sales ChannelsChannels
MarketingMarketing
BillingBilling
Data Warehouse
Data Warehouse
Data IntegrationValidation
??
Public Sector
External Data Sources
Private Sector
Internet
??
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 20
• Full Company Records
• Data Appending• Monitoring & Alert
Services• Portfolio
Management• Benchmarking
Access to External Data
Business StrategyBusiness Strategy
AlertAlert
MonitoringMonitoring
Portfolio Portfolio MgmtMgmt
WorkoutWorkout
FeedbackFeedback
RecoveryRecovery
Order Entry Order Entry Customer Customer
ServiceService
Sales Sales ChannelsChannels
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 21
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.
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 22
• 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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 23
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 24
Agenda
• Credit & Information
• The Business of Information
• 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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 25
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 26
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 27
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 28
0
1
2
3
4
5
6
7
8
9
10
Information Availability
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 29
0
1
2
3
4
5
6
7
8
9
10
Information Availability
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
Trend DownTrend Down
No ChangeNo Change
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 30
0
1
2
3
4
5
6
7
8
9
10
Information Availability
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
Source: IMD 2003 & IEI 2003 SurveysSource: IMD 2003 & IEI 2003 Surveys
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
Trend DownTrend Down
Low
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 31
5
6
7
8
9
10C
oun
try
Infr
astr
uct
ure
Information Availability
High
High
Low
Low High
Low
High
6 7 8 9 10 6 7 8 9 10
Source: IMD 2004 & IEI 2003 SurveysSource: IMD 2004 & IEI 2003 Surveys
France
Austria
Italy
Finland
Denmark
IrelandNetherlands
Sweden
Belgium
Spain
Portugal
Germany
Europe
Trend UpTrend Up
Trend DownTrend Down
UK
Switzerland
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 32
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 33
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 34
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
IEIIEIOctober 2004 - All Rights Reserved - Intrepid Explorers, Inc. - www.intrepidex.com - 35
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