1 1 st Credit Risk Management Conference December 2010 The Credit Cycle Leonidas Kotsaftis Director,...
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1 1 st Credit Risk Management Conference December 2010 The Credit Cycle Leonidas Kotsaftis Director, Credit Risk Assessment Services ICAP GROUP
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Transcript of 1 1 st Credit Risk Management Conference December 2010 The Credit Cycle Leonidas Kotsaftis Director,...
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1st Credit Risk Management Conference
December 2010
The Credit Cycle
Leonidas Kotsaftis
Director, Credit Risk Assessment Services
ICAP GROUP
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Agenda
Business Financial and Payment Performance Outlook
Credit Cycle vs Credit Cycles
The Credit Cycle
The Cash Flow Pipe Line
The Credit Process
The Credit Management
Business Information Data
Credit Risk Evaluation
Receivables Management
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Source: ICAP Bulgaria DataBank
- Identity + Commercial data for 1.200.000 Bulgarian Companies (Establishment, HO, Activity, Staff, BulStat, Management, Shareholders, etc.)
- Balance Sheets for the largest 40.000 Bulgarian Companies (Assets, Liabilities, P&L accounts, 20 financial ratios, for 2007, 2008, 2009)
- Daily Update for Identity + Commercial Data / Yearly update of B/S data- Peer group analysis based on basic Financial Accounts and Ratios- State of the art technological environment for on line dispatch of business info
Business Financial Outlook
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This indicator is calculated on the basis of information provided by banks pursuant to BNB Ordinance No. 9 on the Evaluation and Classification of Risk Exposures (exposures past-due over 90 days, exposures past-due over 180 days and restructured risk exposures)
Source: Bulgarian National Bank
Business Payment Performance
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Credit Cycle vs Credit CyclesThe Credit Cycle Management is a discipline by which an organization assess, controls, exploits, finance and monitors risk from all sources for the purpose of increasing the organization short and long term value to its stakeholders.
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Credit Cycle vs Credit Cycles
Credit Cycles involving the access to credit by borrowers.
Credit cycles first go through periods in which funds are easy to borrow:
• Lower interest rates, • Lower lending requirements • Increase in credit amount
These periods are followed by a contraction in the availability of funds:
• Higher interest rates • Strict lending rules • Decrease in credit amount
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Credit Cycle vs Credit Cycles
Credit cycles first goThrough periods in which funds are easy to borrow.
These periods are followed by a contraction in the availability of funds
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How can I …..
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The Credit Cycle
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The Cash Flow Pipeline
Cash
Share Owners
Product Development
MARKET
CAPITAL MARKET
Account Receivables
The Cash Flow Pipeline
Investments
OperatingExpenses
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INPUTINPUT OUTPUTOUTPUT
INPUTINPUTOUTPUTOUTPUT
CUSTOMERS
SUPPLIERS
Materials
Products – Services Development
Sales
COMPANY
The Credit Operation Process
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The Credit Process
MarketingBusiness Development
Credit Policy
Monitoring
Remedial Management
Stage 1
Stage 2
Stage 3
Stage 4
• Legal aspects• Doc process• Quantitative
• Relationship income• Capital adequacy• Qualitative
• Reviews • Rev-approvals
• Enforcement of Guarantees• Winding up
• Foreclosure• Turnaround service
Receivership
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Data is the key
Client Prospects ………………………. Client Customers
Market
Lists + Studies
Business Information
Credit Ratings
Probability of Default
Credit Limits
Credit Watch
Behavioral Scores
Portfolio M
anagement
ICAP Bulgaria DataBank
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Business Information Data
Commercial Commercial DataData
Commercial Commercial DataData
•Establishment Year•Head Offices – Installations •Activity (Sector, Nace, Products)•Imports - Exports•Import – Export Terms•Trade marks•Representations •Staff•Suppliers •Customers •Shareholders / Partners •Board of Directors •Affiliates / Subsidiaries •Financial Data •Projects / Investment Plans•Banks
Financial Financial DataData
Financial Financial DataData
•Balance Sheets - P & L
•Mid Term Accounts
•Financial Ratios
•Consolidated B/S
•Consolidated Mid Term
Negative Negative EventsEvents
Negative Negative EventsEvents
•Bankruptcies and Bankruptcy Petitions
•Detrimental Items
•Dissolutions, LiquidationsWork Suspension, etc.
ICAP Bulgaria DataBank
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Credit Risk Evaluation
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2
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Higher Risk
Decline or
Cash Terms
CommercialAnd
FinancialInformation
Application for Credit
Automated Scoring
Application Processing
Business Decision
Rules
Medium Risk
Analyst Review
LowRisk Immediate Approval
Information Scores Decision Rules
Technology
ICAP Bulgaria DataBank
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Receivables Management Services benefits:
• Reduce the time for the collection of debt and as a result the limitation of borrowing
and payment of interest.
• Reduce the loss and legal expenses from bad debts.
• Improve customer management in collection matters with the aim to avoid conflict and
related uncertain outcomes.
• Improve business competitiveness due to the reduction in borrowing cost and in the
loss from bad debt.
Receivables Management
ICAP Bulgaria RM
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Credit Risk Indicator
Credit Risk Evaluation
Credit Watch
Monitoring
Pre-collection strategies
Collection Strategy
Credit Management
Portfolio Management
The Credit Cycle Management
Marketing + Sales Divisions Credit Policy + Strategy
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ICAP Credit Rating
ICAP Bulgaria DataBank
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The Credit Cycle
The biggest Risk in Risk Management is NOT seeing the Risk!
Risk Management is everyone’s business, not just the CEO’s, CFO’s.
Credit Risk Management is an integral part of Enterprise Risk Management.
Recognize the Role of Credit Officers and Credit Risk Managers as Gate-Keepers of company’s Assets.
“Dirty your Hands” going through event simulation process.
Be familiar with PDs, EAD, Recover Rates, Expectation of Credit Losses and the quantitative side of risk measurement (Value-at-Credit-Risk)
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1st Credit Risk Management Conference
December 2010
The Credit Cycle
Leonidas Kotsaftis
Director, Credit Risk Assessment Services
ICAP GROUP
