Credit Bureaus Credit Bureaus as a Prerequisite of as a Prerequisite of Healthy Development of the National Healthy Development of the National EconomyEconomy

Lou NaumovskiSenior Vice-PresidentGeneral Manager in Russia and CISVisa CEMEA

Kyiv, Ukraine

September 29, 2006

INTERNATIONAL CREDIT BUREAU CONFERENCE

Presentation Identifier.2Information Classification as Needed 2

Payment cards market development

1980 1998 2003 2005 2006

Ev

olu

tio

n

First Visa Card issued

Abundant salary projects

Opening of accounts by

“people from the street”

Beginning of consumer lending

Establishing of credit

market

Modern smart

market of “no-cash” payments

Some banks

Limited issue of cards

Creation of acceptance network

Entry into regions

Daily usage of Visa cards

Expansion of retail network

Growing interest in consumer lending

Growing number of banks

Legislative framework

Scoring mechanism

Credit bureaus

Formation of new culture

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Benefits credit cards give to:

Banks: Reduced cost of servicing of extended credit Automated management and approval process Collection and analysis of information on client’s behavior “Keeping” existing clients and possibility of cross-sales

Clients: Possibility to renew credit limit

Credit cards are not ‘tied’ to a particular store or purchase Benefits of well-developed acceptance network

Retailers: Higher spending capacity of customers and increased sales Stronger customer loyalty A tool of collecting information about customers’ behavior

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Factors driving growth of credit cards market

Enabling legislative framework

Banks targeting segments of client base

Awareness of population

Credit bureaus

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Value of credit bureaus

Reduced credit risks of lenders

Bigger volumes of lending

Better liquidity of banks’ assets

Better access of public and SMEs to credit resources due to differentiated and/or lower interest rates on credit

Higher purchasing capacity of population

Improved credibility of banking system

Economic growth in the country

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Chronology of Credit Bureaus Development in Ukraine August 2003 – April 2005: Law of Ukraine “On Organizing the Formation and Circulation of Credit Histories” drafted

2 June 2005: foundation of the “First National Bureau of Credit Histories” Ltd.

6 June 2005 Ukrainian Bureau of Credit Histories Ltd. founded by PrivatBank registered

23 June 2005 Law of Ukraine “On Organizing the Formation and Circulation of Credit Histories” adopted

23 August 2005: CreditInfo Ukraine registered

6 October 2005: International Bureau of Credit Histories founded

16 December 2005: joint plan of IFC and Visa СЕМЕА to support development of credit bureaus in the region

23 December 2005: the Law came into effect

December 2005: Ministry of Justice designated as Regulator of Credit Histories Bureaus

September 2006: Ukrainian Bureaus of Credit Histories begin operating in full scope mode.

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Why quality, completeness and accuracy of data are important? To-date, over 32 million* payment cards have been issued in Ukraine

Quantity of credit cards as of September 1, 2006 is over 5 million*

By the end of 2007 the number of credit cards may reach from 10 to 12 million (each fourth resident of the country)

Incomplete or inaccurate credit history may result in:

Unfairly turned down credit card applications;

Lower number of credit card users due to higher interest rate;

Lenders setting lower credit limits and fewer individual interested in usage of credit cards.

Higher rate of defaults, more bad debts and reduced profitability of card business for issuing banks

* По данным ЕМА

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Other countries’ experienceOther countries’ experience: : RussiaRussia

Credit cards market size

Over 60 million payment cards issued to-date in Russia

As of end of 2nd quarter 2006, quantity of credit cards (according to Visa):approximately 14 million credit cards of all types,

of which: 12 million credit cards, were issued after repayment of consumer loan 2 million credit cards issued via bank channels,

however up to 30% of these cards are inactive yet

By the end of 2008 the number of credit cards in Russia may reach 25 million:

1 of 4 bank cards will be a credit card 70% of cards will be issued as a reward for repayment of consumer credit,

however, their portion will gradually decrease

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Other countries’ experienceOther countries’ experience: : RussiaRussia

Barriers to development of credit cards:

Public generally unaware of revolving credit card

Poor education of clients and as a result low culture of credit usage

Few credit histories

Nascent credit bureaus

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Other countries’ experienceOther countries’ experience: : RussiaRussia

Areas for development:

Under the law, bank is obliged to submit information to a credit bureau

… client is not obliged to do so

Bank does not have to work with more than one credit bureau

… as a result, no information exchange is effectuated

In Russia, volume of non-payments in the first six months of 2006 has grown by more than 35% and exceeded 30 Bn roubles.

• This is explained by the prevailing majority of express-credits issued by retailers, and

• Impossibility to accurately assess creditworthiness of the borrower

To-date, Russia has 64 registered credit bureaus

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Other countries’ experienceOther countries’ experience: : Canada Canada

Legislative framework

Provincial laws on reporting about consumers’ creditworthiness

Federal and provincial laws on privacy

These laws regulate procedure of collection, use and disclosure of personal information by businesses, and entitle consumer to access and correct such information

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Other countries’ experienceOther countries’ experience: : CanadaCanada

What is included into personal file of a Canadian …

ID information: name, address, date of birth etc.

Last inquiries (typically, for 3 last years)

Payment history (for 6 years): positive and negative, maximum amount of credit, outstanding amount, name of lender etc.

Public data (as a rule, for 6 years): bankruptcy, if any, courts’ awards, registered facts of foreclosure due to non-payment.

Debt collection claims in favor of third parties (for 6 years)

Client’s statements (if any)

Statements of victims of fraud (if any)

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Other countries’ experienceOther countries’ experience: : Canada Canada example of example of Equifax Canada

Basic operational indicators of Equifax Canada

Total number of clients’ files/dossiers: 21,000,000

Quantity of downloaded positions : 100,000,000 per month

Annual accesses to dossiers : hundreds of million (both in on- and off-line mode)

Statistics of client information disclosures :

Total disclosures : approximately 600,000/year

Total follow-up telephone calls : approximately 420,000/year

Total investigations in connection to disputes resolution : approximately 35,000/ year

По данным компании Equifax Canada

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Other countries’ experienceOther countries’ experience: : South KoreaSouth Korea

As a result of 1997 crisis, GDP plummeted by 37% from US$520 Bn in 1996 to US$325 Bn in 1998, and consumer spendings fell drastically

Year 1999 saw the implementation and popularization of credit cards as a way to revitalize national economy and increase tax revenues

Amount of spendings on credit cards grew up from US$53 Bn in 1998 to US$519 Bn in 2002

Overall debt on credit cards boosted from US $11.0 Bn at the end of 1999 to US$57.5 Bn in 2003

In 2003, nearly 25% of borrowers declared default

Approach “Everything at once” led to the “credit bubble”

По данным Lafferty Group, 2004

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Development of Lending in UkraineDevelopment of Lending in Ukraine

Further development of legislative framework by making improvements to the industry law and having Ministry of Justice issue appropriate regulatory acts without delay

Educate consumers in usage of credit and explain the importance of formation of a good credit history

Launch all existing bureaus into full capacity operation (end of 2006 – early 2007)

Develop internal scoring systems with banks and use scoring bureau

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Steps to Develop Credit Cards MarketSteps to Develop Credit Cards Market

Visa

Assist banks in credit cards portfolio management

Develop effective marketing programs

Raise financial awareness of customers

Work with regulatory bodies to improve legislation

Banks

Shift from credits in points of sale to credits on credit cards

Active cooperation with credit bureaus

Develop credit cards acceptance network

Develop credit products of basic and advanced levels

Thank you!

www.visa.com.ru