1. Information sharing in private credit markets – the case of CEE countries Iván Major Pannonia University, and Institute of Economics, H.A.S.

2. Background – banks and private credit in CEE The mono–banks and the banking system after the transition –Privatization and FDI in the banking sector Market structures in retail banking (sources of data on banks: Credit card project, principal investigator: Akos Rona-Tas, Department of Sociology, UCSD)

3. The Bulgarian Banking Sector

4. Czech Republic (1991)

5. Russian Federation Highly concentrated market –Sperbank and Vneshtorgbank account for more than 60 percent of all private loans and 40 percent of profits Under-developed banking system Low level of household lending Regional concentration: more than 50 percent of banks are located in Moscow

6. Hungary, Czech Republic, Poland

7. Background – Population Decreasing population (average annual growth, %) (source: WDI) 1980–19981990–20052005–2015* Bulgaria–0.4–0.8 Czech Republic0.0–0.1–0.2 Estonia–0.1–1.0–0.3 Hungary–0.3–0.2–0.3 Latvia–0.2–1.0–0.6 Lithuania0.5–0.5 Poland0.50.0–0.2 Romania0.1–0.5–0.4 Russian Federation0.3–0.2–0.5 Slovak Republic0.40.1–0.1 Slovenia0.20.0–0.2 Ukraine0.0–0.6–1.1 Peoples’ Republic of China 1.30.90.5

8. Background – Economic Growth Unbalanced economic growth (average annual growth, %) (source: WDI) 1980–19901990–20002000–2005 Bulgaria3.4–1.85.0 Czech Republic1.71.13.5 Estonia2.20.27.5 Hungary1.31.64.1 Latvia3.6–1.57.9 Lithuania5.1–2.77.8 Poland4.84.73.2 Romania–7.5–0.65.8 Russian Federation– 4.6–4.76.2 Slovak Republic4.41.94.9 Slovenia..2.73.4 Ukraine–1.7–9.38.0 Peoples’ Republic of China 7.810.69.6

9. Background – Growth of Household Consumption Private demand expanded (average annual growth, %) (source: WDI) 1990–20002000–2005 Bulgaria–3.0–6.5 Czech Republic3.03.3 Estonia2.27.4 Hungary0.06.3 Latvia–2.79.3 Lithuania.. Poland5.13.0 Romania1.77.9 Russian Federation–0.89.8 Slovak Republic4.53.4 Slovenia3.92.5 Ukraine–6.413.1 Peoples’ Republic of China 7.86.2

10. Background – Inflation Decelerating price inflation (average annual growth, %) (source: WDI) 1980–19901990–20002000–2005 Bulgaria6.3135.015.0 Czech Republic..7.82.0 Estonia..21.63.3 Hungary9.622.75.8 Latvia..29.23.9 Lithuania..32.60.6 Poland50.925.32.5 Romania..100.517.7 Russian Federation..99.114.4 Slovak Republic..1.70.6 Slovenia..6.46.1 Ukraine..155.77.1 Peoples’ Republic of China..8.61.3

11. Background – Credit to Private Sector Slowly progressing financial markets (Private credit, % of GDP) (source: WDI) 19982005 Bulgaria12.643.6 Czech Republic59.843.6 Estonia25.371.3 Hungary22.362.9 Latvia14.172.8 Lithuania11.342.3 Poland19.632.6 Romania12.720.8 Russian Federation12.920.7 Slovak Republic45.949.6 Slovenia32.964.8 Ukraine155.77.1 Peoples’ Republic of China 112.8135.7

12. Background – Interest rates Unstable real rates of interest (source: WDI) 199019982005 Bulgaria– 53.3– 7.33.8 Czech Republic10.11.74.7 Estonia–86.66.6– 1.2 Hungary2.52.85.9 Latvia21.32.7– 2.9 Lithuania–52.85.32.9 Poland9.911.13.7 Romania.. Russian Federation..27.1– 7.5 Slovak Republic–11.015.34.1 Slovenia374.38.16.2 Ukraine..155.77.1 Peoples’ Republic of China 0.37.58.0

13. Information Sharing – an Overview Non-performing loans, and credit registries (source: WDI) Non-performing loans, % (2005) Public registry cov., % (2006) Private registry cov., % (2006) Bulgaria1.720. 7.. Czech Republic4.33.551.0 Estonia0.20.018.2 Hungary2.10.05.9 Latvia..0.0 Lithuania2.54.27.2 Poland7.70.038.1 Romania8.32.65.5 Russian Federation3.20.0 Slovak Republic2.01.045.3 Slovenia4.92.90.0 Ukraine19.30.0 Peoples’ Republic of China 10.510.20.0

14. Information sharing among banks Establishing public credit registers Black lists – implemented by law The type and reliability of information The share of bad borrowers in the private credit market The benefit and drawbacks of bad information sharing –Low coverage –Weak predictive power about good borrowers’ future behavior

15. Can a full list become the banks’ dominant strategy? Until fraction of bad borrowers is small – banks prefer no information sharing –Large banks also benefit from “poisoning” the customer base of smaller banks – myopic behavior If banks operate with similar costs – competition is soft – no need to acquire customer information Growing indebtedness of private borrowers –Mortgage loans and auto loans

16. Information sharing – the borrowers’ perspective Interest rates with no information sharing > interest rates with a full list Interest rates with full list > interest rates with black list Good borrowers would prefer information sharing about “bad” customers Full information sharing may violate individuals’ civil rights (too much information is around)