Over recent years, loan services have been the main driver for the banking market development. According to the Open Joint Stock Company National Bureau of Credit Histories (NBCH) the total retail loans volume grew by 44.1% in 2011 and by 54.8% in 2012. Rapid growth contributed to good yields due to high rates, avail­ability of a significant number of new borrowers, a large number of banks entering the retail lending market, a branch network develop­ment and investment in infrastruc­ture. In 2013 the market experienced recession - growth of personal loans made 36.9%. The bank regulator decided to "cool down" the market, as a result the requirements for the unsecured personal loans reserve were upgraded, weighting coeffi­cients for high-margin loan risks were increased and the maximum interest rate was limited.

The main challenge for retail banks in 2014 was a significant drop in return of assets. During this year, the banks will find it more difficult to maintain the return of assets at an adequate level under the retail market slowdown con­ditions. Along with the achievement of this goal they will be constrained to face with the major challenge, namely to make the borrowers selection process more severe and possibly to reduce the proportion of the most risky unsecured loans in the portfolios.

They will have to do this at time when the base of new borrowers is actu­ally exhausted: according to NBCH only 20% of economically active citizens haven't borrowed loans. In 2014 com­petition in the banking market increased remarkably as a result of influence of all of the factors.

Under current conditions, the credit institutions need tools that will help them to tackle new threats and sustain com­petition. For many years NBCH has been helping banks to achieve the objectives with consideration of the established market trends. That's why the Bureau has become the largest supplier of the credit risks management solutions. The NBCH-created risk management tools are char­acterized by high predictive ability since they are being adjusted and verified against the largest and the most relevant base. Scoring models are most in-demand among the tools created by NBCH. Cur­rently six out of the ten leading Russian credit institutions (and fifteen out of the largest thirty) use a "Scoring bureau" based on NBCH data.

It is important for the creditors to assess the borrower quickly and with high predictive accuracy. Nowadays NBCH scoring is the most necessary risk management tool for the credit institu­tions which is supported by the number of requests exceeding million per month.

The Bureau offers several variants of scoring inclusive of models with make it possible to assess not only potential borrowers, but operating accounts as well. The creditors will be able at any time to carry out so called retroscoring, i.e. to evaluate the efficiency of this or that scoring model with due account for specificity of their customer base and after considering the results to select the necessary one.

At present scoring cards prepared in compliance with the borrowers' credit scores from the NBCH database is actually the principal tool for bank-specific risks cushioning. However, this type of cards is based only on already accumulated infor­mation about a borrower. Moreover, cred­it behaviour of a borrower often tends to change. In the conditions when the credit health index experiences aggravation (it made 102 points as of January 01, 2014, such situation arose because of financial discipline impairment on the part of the borrowers and consequently increase of "bad" debts volume), the demand for the borrowers' financial behaviour monitor­ing service ("Signal 2.0" system) grew up. The system makes it possible for the creditor to get notifications on 17 types of events connected with changes in credit scores practically in online mode. For the banks, it is necessary to have an idea of these processes in order to prevent a customer from overdue payments or tak­ing other loans from a competitor. "Signal 2.0" will give an opportunity to the finan­cial institutions to realize cross-selling, to change loan limits in an expeditious man­ner, to manage a troubled debt.

BENCHMARKING, SOCIAL CONNECTIONS AND CONTROL OVER FRAUDULENT PRACTICES

The solutions offered by the Bureau have proven effective since they were devel­oped at a time when were needed. The threats, which emerged in 2013, as well as preconditions for increased competi­tion among retail banks have necessitated creation of brand new innovative services which would harmoniously complement those already offered by the Bureau. In 2013, the financial institutions faced the necessity to adjust their credit strategies. This was conditioned on the one part by change in the regulatory provisions by the Bank of Russia and on the other part by the downgraded loan servicing on the part of the borrowers from almost all target groups. Under these conditions, the credit institutions need to take a bal­anced approach to their own decisions and make allowance for the representa­tive market indices, which will exclude the possibility of error.

In the middle of 2013, NBCH and about 20 banks leading the retail lend­ing sphere have joined into a working group which determined a list of indices for benchmarking which are of interest to the financial institutions. The project was named as "Benchmarking" since it suggests comparison of indices of a bank with the indices of banks from the com­petitive group. More than 230 param­eters are subject to comparison, among them there is a borrower's portrait, efficiency of work with past-due debts, quality of refund etc. The data are repre­sented with a breakdown into loan types and amounts, borrowers' age, regions of Russia. Each parameter is shown over the last year and in separate cat­egories "own/others". Obviously, for the moment "Benchmarking" by NBCH is a unique possibility to assess efficiency of credit policy and planning based on the representative market data.

The banks want to know how their competitors activity influences their mar­ket power, in what manner a borrower's environment influences his/her finan­cial discipline. Investigation through the NBCH database revealed that more than 50% of the customers have social connec­tions with each other. The Bureau found out correlation between the credit behav­iour of the borrowers and the individuals in the social network of the borrowers. At present major creditors to assess better a client's risk profile, use this information. Furthermore, this technique is used in the FICO scoring model.

The same principles are definitive at time of counteraction against loan fraud­ulent practices. According to NBCH as of January 01, 2014 loss of the creditors due to fraudulent practices made RUR 153 bln., whereas in the year earlier period the volume of loss made RUR 67 bln. Under such conditions, require­ments towards risk analytics become more severe. At time of creating adequate strategy and tactics, the creditors should apply accurate market analysis, study of various indicators relevant to each stage of the lending process and to the dynam­ics of these indicators. The technology is designed for effective counteraction against fraudulent practices at the stage of credit applications consideration. At the moment "NBCH-AFS" (Anti-Fraud System) system is unequalled due to its intellectual capabilities, high-speed per­formance and operability. Almost all major banks installed the system and NBCH expects principal changes in the trends in the sphere of anti-fraudulent actions as early as 2014. The more espe­cially as another solution in the same sphere is getting more and more popu­lar: so called Fraud Score (a scoring card ranging the credit applications by a credit fraud probability). When used together, these tools show excellent results.

It is assumed that new NBCH tools will be in demand. This year, when the retail lending market growth rate is slow­ing, competition in the banking market moves to a principally new level. The creditors which will improve the risk man­agement system and as a result of such arrangements will be able to improve quickly the quality of credit portfolios, will become the market leaders.