Just as millions of Americans check their FICO Scores to see how their credit is doing, FICO and the National Bureau of Credit Histories (NBKI), Russia’s leading credit bureau, keep tabs on the health of Russian consumers. If your credit history matched the trend we see in the FICO Credit Health Index, you’d be worried.
The FICO Credit Health Index measures Russia’s overall credit health, based on the percentage of consumer loans and credit cards reported to NBKI that are delinquent by more than 60 days. The index has been falling since it peaked in January 2012, and it’s still falling, a symptom perhaps of the negative trend in the Russian economy.
Last month, the index stood at 95 points, one point below January’s 96 but 7 points (or 7%) below the 102 points of January 2014.
In February, 13.4% of Russian credit accounts were delinquent, compared with 10.7% in January 2014, and just 7.1 percent in January 2012. Clearly, the macroeconomic trend in the region, with its impact on wages and also on the GDP growth, is also taking a toll on the consumer’s credit health.
Credit restrictions as banks reduce their credit offers are matched by low-risk consumers restraining their requests, leading to the phenomenon known as adverse selection — a higher proportion of high-risk customers seek credit, reducing the portfolio quality.
As noted in our January announcement, what’s needed in Russia is what’s needed in any market where credit use and credit delinquencies are both growing while the economy struggles: tight management of risk, good communications with existing borrowers and good debt collection functions.
Another important strategy is prevention: collections is firefighting, prevention is early warnings and pre-collections efforts. The better the prevention capability, the better the exposure control and the “credit counselling effect,” reducing new cases rolling to collections and preventing high debits.
The historic credit growth in the Russian market is creating a portfolio that now will become delinquent — not because accounts were badly approved but because the environment has changed. Credit counselling, debt restructuring and payment capacity adequacy are paramount.