Information sharing in private credit markets – the case of CEE countries Iván Major Pannonia...

Information sharing in private credit markets – the case of CEE countries

Iván Major

Pannonia University, and

Institute of Economics, H.A.S.

Background – banks and private credit in CEE

• The mono–banks and the banking system after the transition– Privatization and FDI in the banking sector

• Market structures in retail banking

(sources of data on banks: Credit card project, principal investigator: Akos Rona-Tas, Department of Sociology, UCSD)

The Bulgarian Banking Sector

Czech Republic (1991)

Russian Federation

• Highly concentrated market– Sperbank and Vneshtorgbank account for more than 60

percent of all private loans and 40 percent of profits

• Under-developed banking system• Low level of household lending• Regional concentration: more than 50 percent of

banks are located in Moscow

Hungary, Czech Republic, Poland

Background – Population

Decreasing

population

(average annual

growth, %)(source: WDI)

1980–1998 1990–2005 2005–2015*

Bulgaria –0.4 –0.8 –0.8

Czech Republic 0.0 –0.1 –0.2

Estonia –0.1 –1.0 –0.3

Hungary –0.3 –0.2 –0.3

Latvia –0.2 –1.0 –0.6

Lithuania 0.5 –0.5 –0.5

Poland 0.5 0.0 –0.2

Romania 0.1 –0.5 –0.4

Russian Federation 0.3 –0.2 –0.5

Slovak Republic 0.4 0.1 –0.1

Slovenia 0.2 0.0 –0.2

Ukraine 0.0 –0.6 –1.1

Peoples’ Republic of China

1.3 0.9 0.5

Background – Economic Growth

Unbalanced

economic

growth

(average annual


1980–1990 1990–2000 2000–2005

Bulgaria 3.4 –1.8 5.0

Czech Republic 1.7 1.1 3.5

Estonia 2.2 0.2 7.5

Hungary 1.3 1.6 4.1

Latvia 3.6 –1.5 7.9

Lithuania 5.1 –2.7 7.8

Poland 4.8 4.7 3.2

Romania –7.5 –0.6 5.8

Russian Federation – 4.6 –4.7 6.2

Slovak Republic 4.4 1.9 4.9

Slovenia .. 2.7 3.4

Ukraine –1.7 –9.3 8.0


7.8 10.6 9.6

Background – Growth of Household Consumption

Private demand expanded

(average annual


1990–2000 2000–2005

Bulgaria –3.0 –6.5

Czech Republic 3.0 3.3

Estonia 2.2 7.4

Hungary 0.0 6.3

Latvia –2.7 9.3

Lithuania .. ..

Poland 5.1 3.0

Romania 1.7 7.9

Russian Federation –0.8 9.8

Slovak Republic 4.5 3.4

Slovenia 3.9 2.5

Ukraine –6.4 13.1


7.8 6.2

Background – Inflation

Decelerating

price inflation

(average annual


1980–1990 1990–2000 2000–2005

Bulgaria 6.3 135.0 15.0

Czech Republic .. 7.8 2.0

Estonia .. 21.6 3.3

Hungary 9.6 22.7 5.8

Latvia .. 29.2 3.9

Lithuania .. 32.6 0.6

Poland 50.9 25.3 2.5

Romania .. 100.5 17.7

Russian Federation .. 99.1 14.4

Slovak Republic .. 1.7 0.6

Slovenia .. 6.4 6.1

Ukraine .. 155.7 7.1


.. 8.6 1.3

Background – Credit to Private Sector

Slowly progressing

financial markets

(Private credit,

% of GDP)(source: WDI)

1998 2005

Bulgaria 12.6 43.6

Czech Republic 59.8 43.6

Estonia 25.3 71.3

Hungary 22.3 62.9

Latvia 14.1 72.8

Lithuania 11.3 42.3

Poland 19.6 32.6

Romania 12.7 20.8

Russian Federation 12.9 20.7

Slovak Republic 45.9 49.6

Slovenia 32.9 64.8

Ukraine 155.7 7.1


112.8 135.7

Background – Interest rates

Unstable real

rates of interest(source: WDI)

1990 1998 2005

Bulgaria – 53.3 – 7.3 3.8


Estonia –86.6 6.6 – 1.2

Hungary 2.5 2.8 5.9

Latvia 21.3 2.7 – 2.9

Lithuania –52.8 5.3 2.9

Poland 9.9 11.1 3.7

Romania .. .. ..

Russian Federation .. 27.1 – 7.5

Slovak Republic –11.0 15.3 4.1

Slovenia 374.3 8.1 6.2

Ukraine .. 155.7 7.1


0.3 7.5 8.0

Information Sharing – an Overview

Non-performing

loans, and

credit registries(source: WDI)

Non-performing loans, % (2005)

Public registry cov., % (2006)

Private registry cov., % (2006)

Bulgaria 1.7 20. 7 ..


Estonia 0.2 0.0 18.2

Hungary 2.1 0.0 5.9

Latvia .. 0.0 0.0

Lithuania 2.5 4.2 7.2

Poland 7.7 0.0 38.1

Romania 8.3 2.6 5.5

Russian Federation 3.2 0.0 0.0

Slovak Republic 2.0 1.0 45.3

Slovenia 4.9 2.9 0.0

Ukraine 19.3 0.0 0.0


10.5 10.2 0.0

Information sharing among banks

• Establishing public credit registers• Black lists – implemented by law• The type and reliability of information• The share of bad borrowers in the private credit

market• The benefit and drawbacks of bad information

sharing– Low coverage

– Weak predictive power about good borrowers’ future behavior

Can a full list become the banks’ dominant strategy?

• Until fraction of bad borrowers is small – banks prefer no information sharing– Large banks also benefit from “poisoning” the customer

base of smaller banks – myopic behavior

• If banks operate with similar costs – competition is soft – no need to acquire customer information

• Growing indebtedness of private borrowers– Mortgage loans and auto loans

Information sharing – the borrowers’ perspective

• Interest rates with no information sharing > interest rates with a full list

• Interest rates with full list > interest rates with black list

• Good borrowers would prefer information sharing about “bad” customers

• Full information sharing may violate individuals’ civil rights (too much information is around)

Information sharing in private credit markets – the case of CEE countries Iván Major Pannonia...

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