Data, a CRO’s best friend?

Diamonds may be a girl’s best friend, but for Paul Franks, director of financial services at SAS Australia, chief risk officers’ notion of “beautiful white data” sounds almost romantic.

Like diamonds, pristine data doesn’t come cheap. Nor does it come easily, hence the Australian financial services industry is investing no end of time and money to mine the data from legacy systems and aggregate it so that it can be a valuable weapon in the chief risk office’s armoury.

GE Capital Australia and New Zealand is currently undertaking that very job and it has been a huge investment to bring consistency in definitions and calculations, chief risk officer Marcus Oakley said at an AB+F chief risk officer panel discussion luncheon in Melbourne recently.

“It’s really very complex when you’ve built a business over time through acquisitions and you have legacy systems,” he said.

National Australia Bank’s general manager, group risk oversight, Tony Woods, sympathised with having to deal with legacy processes and systems.

“If you were building a bank or starting a bank today, I’m sure our modelling people would say that if you built it right, it would be so easy.

“But we don’t have that luxury. We actually have to continue to operate and we’ll still have legacy systems,” although they will eventually get rid of lot of them, he said.

For the last two to three years, his colleagues have been extracting what data they can from the old systems and standardising it so that the bank is set up for the future.

“It’s complex, it’s expensive and it’s time-consuming and you know that when they deliver a new process it will be time to start the next one.” But because the executive team decided to tackle the issue and invest in the future, Woods said that the bank now has some great systems coming in.

Kick-starting comprehensive credit reporting

Having good data is essential when comprehensive credit reporting is introduced in March next year but one of the big questions is which institutions will be game to input their data first, meaning the entire industry will have access.

“I think it’s a stare-down exercise at the moment,” said ME Bank’s chief risk officer Nick Vamvakas.

He’s expecting that the big banks will go first. “Being realistic, they’re 90 per cent of the market. They’ve got the history and the data.”

“Once it’s in there, then we’re all going to be able to use it. But if it’s ME and GE that go in there, it’s not going to be very useful,” Vamvakas said.

If comprehensive credit reporting is going to have the impact that the industry has been clamouring for over the last 10 years, then the industry must be ready to contribute, said Oakley.

“It will be as good as the way the industry makes it. People really need to be thinking that way rather than perhaps in an institutional way.”

Data gives direction

Once institutions have the incremental data that comprehensive credit reporting brings, GE will start to build its strategies and different ways of thinking so that eventually the data will have influence across the credit life cycle, from origination through to the worst case of collections and default.

Oakley noted that in other countries with comprehensive credit reporting, there has been a 25 per cent reduction in defaults just by making better decisions due to having additional data.

Furthermore, once borrowers have gone delinquent, analysis indicates that between four and 20 per cent of collections activity can be better prioritised and segmented due to the incremental data.

“So it has significant impacts across the lifecycle and I would expect to see that coming through next year and into 2015,” Oakley said.

Vamvakas said that once the industry-wide data is available, institutions can introduce tools to use the data to competitive advantage.

In the meantime, there’s a huge consumer education task, said Vamvakas. “At this stage, I think consumers are fairly scared of what it might mean for them.”
chief risk officers, CROs, data, Paul Franks, SAS Australia, GE Capital, Marcus Oakley, legacy systems, NAB, Tony Woods, credit reporting
Marion Williams,
Article Posted:
September 12, 2013

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