Here’s sobering news for one of the world’s fastest growing credit economies: Russian borrowers’ credit health reached nearly a four-year low in October. The country’s FICO® Credit Health Index fell to 102, down from 104 last quarter, and just 2 points above the low experienced in late 2009. This information was published by FICO with our partner, the National Bureau of Credit Histories (NBKI), Russia’s leading credit bureau.
Since April 2012, the index has continued to worsen through to the current quarter. With the index continuing its downward trend, consumer performance needs to be closely monitored in the coming quarters. As Russian lenders grant more unsecured consumer loans and credit cards, delinquency rates will likely continue to rise.
But all risk managers must bear in mind that this countercyclical effect is normal after a period of rapid growth in emerging economies. Growth was based on newcomers to the credit market, customers with no previous experience with credit products, even some who just reacted to the credit euphoria.
That’s why the tactics now must include credit counseling, pre-collections strategies and nerves of steel. A good set of analytic tools can help, but even more important is a strong operational process, capable of absorbing extra volumes, and configurable, to adapt strategies quickly.
Another best practice is applicable to originations: While the instinct may be to close the door to new customers, what lenders should really do is keep the originations flow coming but with different credit strategies and pricing models to support profitability and market penetration.
You can read more about regional trends in our news release.