Raiffeisen International has added a predictive element to its credit scoring process to reduce credit risk and potentially stabilise the capital requirements of its retail bank.
Raiffeisen is using economic impact services (EIS) to complement its more traditional credit scoring information, a project it has been working on with credit scorer FICO.
EIS overlays macroeconomic information onto a traditional credit scoring process, creating a dynamic system that adapts to Raiffeisen’s in-house research on the economy in the central and eastern European countries in which it operates. The bank has tested out the technology on credit cards, personal loans and mortgages across the group and is introducing it first in Hungary.
Zsolt Jaczko, head of methodology and validation at the Austria-based bank, told Electronic Payments International the bank was able to grow its loan book as a result of implementation, despite testing credit conditions in central and eastern Europe.
Jaczko and his team initially became interested in the system following an order from regulators to build future economic expectations into credit risk analysis.
“Originally, it came as a regulatory issue,” he said. “Then we realised it was more than just compliance, that we could achieve stability in the overall capital requirements of the retail group. It goes across account management and capital management.
“That is quite an achievement and an important hook.”
It became clear the bank needed a forward-looking element to its credit scoring during the financial crisis after concerns heightened about the creditworthiness of some central and eastern European countries.
FICO principal consultant David Molyneaux said Raiffeisen was an early adopter, but that many banks were looking at economic impact services.
“They [banks] are asking ‘how do we still maintain the discriminatory power of credit scoring while at the same time bringing in the macroeconomic backdrop?” Molyneaux added. “Until the financial crisis, everyone thought that economies could be managed and that we had conquered downturns and upturns but now it is apparent that is not the case.
“This is a specific technique that FICO has researched over some time. We have retained classic credit scoring but overlaid econometrics to calibrate strategies to see how we think the economy is measuring up.
“We see it as the next generation of credit scoring and Raiffeisen has been an early adopter.”