creative product

innovations and campaigns

Viktor Ipacs, SME Marketing Head

K&H Bank, Hungary
Evolution of SME lending in K&H

before: corporate credit assessment

APR-04: launch of micro credit scoring
OCT-04: mass media campaign micro credit
NOV-04: introduced business credit card
FEB-05: mass media campaign: Credit card
OCT-05: launch of micro credit light
NOV-05: mass media campaign: MC light
MAR-06: behavior scoring DM campaign

2
1st step: micro credit: SME lending
faster than tailoring a suit

responding to market challenge:

simplicity: limited
documentation requirements
customization: scoring based
on SME specialties.
quickness: main message
decision in 3 days
transparency: credit
application and decision is
standardized and automated
process.

3
Evolution of SME lending in K&H

Before: corporate credit assessment

APR-04: launch of micro credit scoring
OCT-04: mass media campaign micro credit
NOV-04: introduced business credit card
FEB-05: mass media campaign: Credit card
OCT-05: launch of micro credit light
NOV-05: mass media campaign: MC light
MAR-06: behavior scoring DM campaign

4
Micro credit: Why step further?

>90% of SMEs eligible: loan can be granted in

micro credit based on:
debt rating
existing loans outstanding
collateral packages

risk based pricing

soft collateral lending is possible, but not used
sophisticated collateral and pricing
interdependencies

5
Business Credit Cards- Why?

business credit card is a strange

product itself..

BCC offers short term financing at

0% without collateral!!!

SME lending paradigm to be

broken:
soft or hard collateral always required.
risk based pricing should be applied.
differentiated one-on-one client assessment,
terms, conditions and covenants
SME collections, work out, liquidation
procedures
challenge on the organization: numerous client
files
disadvantages of credit assessment vs.
consumer credit

6
communicating to the market:
message architecture

vision
mission
main message

values

customer expectations

strategic objectives

success factors
target group I. existing clients target group II. new acquisitions

7
marketing environment for business
credit cards

the one and only tangible SME lending product:

plastic

except product packages: debit card with O/D!

- example: government subsidized Szchenyi Card
- own example: K&H business card with overdraft

no market competitor offers real BCC: opportunity to

be the first!

has to be simpler than others and micro..

8
Business Credit Cards 2- assumptions

consumer credit card examples: assume that SMEs behave more like
individuals, but
- higher full payer ratio (40%) assumed
- higher number of cards per debtor
- higher cash and POS transaction amounts
lower interest rate: 1.9 M/M vs. 2.5 M/M!!!
higher card annual fee: corporate cards are more expensive
bankcard acquiring revenues will compensate potential negative credit
margins/losses

We knew that it cannot meet real financing needs of SMEs nor

we it would create significant credit volume, but we expected that
SME executives will find it fashionable and the product makes
its own market.

9
Business Credit Cards 3- findings

SME credit card is a door opener (scoring is still needed,

but simplified: no pricing, no collateral)
reward to existing clients (no additional scoring needed)
very effective to build image as key SME bank
it is profitable! Cash.CashCash80% of the capital is
interest bearing.
questions: if clients use it for cash withdrawal should we
decrease interest rate?
if credit cards are aimed for POS transactions, and clients
use it for cash: risk and collection concerns??
BASEL II process: currently not possible to replace micro
scoring: but use of behavior models for indicative offers.

10
evolution of SME lending in K&H

before: corporate credit assessment

APR-04: launch of micro credit scoring
OCT-04: mass media campaign micro credit
NOV-04: introduced business credit card
FEB-05: mass media campaign: Credit card
OCT-05: launch of micro credit light
NOV-05: mass media campaign: MC light
MAR-06: behavior scoring DM campaign

11
What is Micro Credit Light?
Not only 3 wishes

focus on unsecured lending

logic and scoring the same as
microbut..
collateral = cash flow identified
through A/C turnover
most clients eligible, except
critical in: negative profits,
significant delinquency
pricing less unfavorable vs.
secured lending

12
Why step further ? Micro Credit Light..

soft collateral lending is rare in Micro

exception: credit card, but limited amount and very short
term
market research: banks over-securing loans

Micro Credit Light

identification of a segment in Micro eligible for unsecured lending (80-90% of
clients)
standardize pricing: (e.g. reference rate +4% or 9.99%)
standardize collateral

13
Micro Credit Light 2- Assumptions

unsecured lending is already in Micro - but needs re-

enforcement
standardized offer: pricing and collateral requirements
price 1: EURIBOR + 4 %
price 2: BUBOR + 4%= 9.99% like consumer lending
applicable to short term (<1 year) financing only
collateral: 6 month A/C turnover in any domestic bank.
incoming transfers filtered for intra-client transactions.
financing ratio: 1/5th of A/C 6m turnover (equivalent of cca.
1/10th annual sales)
limits: based on existing obligations and sales p.a.

14
Micro Credit Light findings

efficient to deliver message to customers (unsecured loan

with fixed price)
efficient to deliver message internally (drives focus of credit
decision makers)
coverage of the portfolio has not weakened significantly
loan portfolio increment instead of releasing collateral on
existing loans.
opening doors: significant proportion of clients apply for long
term loans instead of Micro light
default rate expected to rise on a longer run, but remain
below acceptable level

15
Evolution of SME lending in K&H

before: corporate credit assessment

APR-04: launch of micro credit scoring
OCT-04: mass media campaign micro credit
NOV-04: introduced business credit card
FEB-05: mass media campaign: Credit card
OCT-05: launch of micro credit light
NOV-05: mass media campaign: MC light
MAR-06: behavior scoring DM campaign

16
The role of behavior scoring in SME
lending
Basel II process: getting prepared

used as early warning monitoring system

used for indicative offers: fixed amount, price and

collateral

indicative offer: DM campaign along with mass

media campaign

micro light is a pre-runner of behavior scoring:

collateral is A/C turnover, but ordinary scoring
17
Next steps? Other opportunities?

factoring: an addition to ordinary financing

structured credit card offers: supplier-buyer

relationships - bankcard acquiring

other channel/trade financing opportunities

focus on delivery, quality and processes not

products
18
Summary- lessons learned

SME strategy: build on evolution, not 44 products

check your assumptions against reality (example

credit card vs. cash)

be the first in providing something unusual

internal communication is possible through products

take more risks you may end up taking less

19
Thank you!

20