1 st Credit Risk Management Conference December 2010

1. The Credit Cycle Leonidas Kotsaftis Director, Credit Risk Assessment Services ICAP GROUP 1st Credit Risk Management Conference December 2010

2. Agenda • Business Financial and Payment Performance Outlook • Credit Cycle vs Credit Cycles • The Credit Cycle • The Cash Flow Pipe Line • The Credit Process • The Credit Management • Business Information Data • Credit Risk Evaluation • Receivables Management

3. Business Financial Outlook Source: ICAP Bulgaria DataBank - Identity + Commercial data for 1.200.000 Bulgarian Companies (Establishment, HO, Activity, Staff, BulStat, Management, Shareholders, etc.) - Balance Sheets for the largest 40.000 Bulgarian Companies (Assets, Liabilities, P&L accounts, 20 financial ratios, for 2007, 2008, 2009) -Daily Update for Identity + Commercial Data / Yearly update of B/S data - Peer group analysis based on basic Financial Accounts and Ratios - State of the art technological environment for on line dispatch of business info

4. Business Payment Performance This indicator is calculated on the basis of information provided by banks pursuant to BNB Ordinance No. 9 on the Evaluation and Classification of Risk Exposures (exposures past-due over 90 days, exposures past-due over 180 days and restructured risk exposures) Source: Bulgarian National Bank

5. Credit Cycle vs Credit Cycles The Credit Cycle Management is a discipline by which an organization assess, controls, exploits, finance and monitors risk from all sources for the purpose of increasing the organization short and long term value to its stakeholders.

6. Credit Cycle vs Credit Cycles • Credit Cycles involving the access to credit by borrowers. • Credit cycles first go through periods in which funds are easy to borrow: • Lower interest rates, • Lower lending requirements • Increase in credit amount • These periods are followed by a contraction in the availability of funds: • Higher interest rates • Strict lending rules • Decrease in credit amount

7. Credit Cycle vs Credit Cycles Credit cycles first go Throughperiods in which funds are easy to borrow. These periods are followed by a contraction in the availability of funds

8. How can I …..

9. The Credit Cycle

10. Share Owners Account Receivables CAPITAL MARKET Operating Expenses Investments MARKET Product Development The Cash Flow Pipeline The Cash Flow Pipeline Cash

11. The Credit Operation Process S U P P L I E R S C U S T O M E R S OUTPUT INPUT COMPANY INPUT OUTPUT Products – Services Development Materials Sales

12. The Credit Process Receivership • Enforcement of Guarantees • Winding up • Foreclosure • Turnaround service Stage 4 Remedial Management Stage 3 • Reviews • Rev-approvals Monitoring • Relationship income • Capital adequacy • Qualitative • Legal aspects • Doc process • Quantitative Credit Policy Stage 2 Marketing Business Development Stage 1

13. Credit Watch Behavioral Scores Portfolio Management Business Information Credit Ratings Probability of Default Credit Limits Market Lists + Studies Data is the key Client Prospects ………………………. Client Customers ICAP Bulgaria DataBank

14. Business Information Data • Commercial Data • Financial Data • Negative Events • Establishment Year • Head Offices – Installations • Activity (Sector, Nace, Products) • Imports - Exports • Import – Export Terms • Trade marks • Representations • Staff • Suppliers • Customers • Shareholders / Partners • Board of Directors • Affiliates / Subsidiaries • Financial Data • Projects / Investment Plans • Banks • Balance Sheets - P & L • Mid Term Accounts • Financial Ratios • Consolidated B/S • Consolidated Mid Term • Bankruptcies and Bankruptcy Petitions • Detrimental Items • Dissolutions, Liquidations Work Suspension, etc. ICAP Bulgaria DataBank

15. Decline or Cash Terms Higher Risk Application for Credit Commercial And Financial Information 3 2 1 Automated Scoring Application Processing Business Decision Rules Credit Risk Evaluation Analyst Review Medium Risk Low Risk Immediate Approval Decision Rules Information Scores Technology ICAP Bulgaria DataBank

16. Receivables Management • Receivables Management Services benefits: • Reduce the time for the collection of debt and as a result the limitation of borrowing and payment of interest. • Reduce the loss and legal expenses from bad debts. • Improve customer management in collection matters with the aim to avoid conflict and related uncertain outcomes. • Improve business competitiveness due to the reduction in borrowing cost and in the loss from bad debt. ICAP Bulgaria RM

17. Marketing + Sales Divisions Credit Policy + Strategy The Credit Cycle Management Collection Strategy Credit Risk Evaluation Credit Risk Indicator Pre-collection strategies Monitoring Portfolio Management Credit Management Credit Watch

18. ICAP Credit Rating ICAP Bulgaria DataBank

19. The Credit Cycle The biggest Risk in Risk Management is NOT seeing the Risk! Risk Management is everyone’s business, not just the CEO’s, CFO’s. Credit Risk Management is an integral part of Enterprise Risk Management. Recognize the Role of Credit Officers and Credit Risk Managers as Gate-Keepers of company’s Assets. “Dirty your Hands” going through event simulation process. Be familiar with PDs, EAD, Recover Rates, Expectation of Credit Losses and the quantitative side of risk measurement (Value-at-Credit-Risk)

20. The Credit Cycle Leonidas Kotsaftis Director, Credit Risk Assessment Services ICAP GROUP 1st Credit Risk Management Conference December 2010