june

Credit Risk Evolution

Risk VP – Strategy & priorities

June 2012

Profitable & sustainable growth

Models

Expert Rules

Losses aligned with risk appetite

Engines

NBSM (Phase1)

Finance: profitability

Human

Capital

Analytical Tools

SAS

Fraud

Collections

Origination &

Behavior

Marketing

• Demographics
• Analytics
• Channels

Sales

• Risk strategies impact on growth

Business

Intelligence

GDP GROWTH.

2007-2008

2010-2011

2008-2009

2012-2014

World Class Risk Management

The Components of prudent Credit Risk Management

RISK VP: where are we going?

PROFITABLE & SUSTAINABLE GROWTH

• Highly skilled People that encourage collaboration and aligns credit risk with business strategy

People

Process and analytics

• FOCUS on deeper analytics and on continuous improvement to decision making.

RISK VP SCORECARD

• Provisions/ Delinquency
• Cut off
• Policy
• Debt level
• Max limits
• Max term
• Process
• Phone verification
• Income support
• Fraud
• Transactional

Data

• Credit Risk Data readily accessible across products & segments.

• X – Sell
• 2011 $597 MM CAD / 2012 $406 MM CAD

• ↑ Limits
• 2011 $234 MM CAD / 2012 $111 MM CAD

• Preapprovals
• 2011 $855 MM CAD / 2012 $381 MM CAD
• Carrefour 1.1 MM clients - $992 MM CAD
• Private Label $161 MM CAD
• Co-branding $831 MM CAD
• WAP
• 2011: $241 MM CAD / 2012: $583 MM CAD
• On-site dealers approval

• Other initiatives
• Sell W/O portfolio
• $5.4 MM Codensa / $10.9 MM sale

• ROEE driven strategies
• Risk Based Pricing

• Standardized Technology solutions to make optimal decisions.

Technology

Risk as a driver for profitable & sustainable growth

• Risk as a driver for profitable & sustainable growth

Risk as a driver for profitable & sustainable growth

RISK APPETITE

RISK APPETITE

Customer Centric Driven Strategies for Sustainable Profitable Growth

Customer Centric Driven Strategies for Profitable Growth

Customer Centric Driven Strategies for Sustainable Profitable Growth

Growing

Managing

Collecting

Getting

Growing

Managing

Collecting

Getting

Growing

Managing

Collecting

Getting

KEY RISK INITIATIVES

BUSINESS INTELLIGENCE & RISK TECHNOLOGY - NBSM, PROBE

BUSINESS INTELLIGENCE & RISK TECHNOLOGY - PROBE

BUSINESS INTELLIGENCE & RISK TECHNOLOGY - NBSM

TDSR Strategies for Auto Loans

CARREFOUR DASHBOARD: FLOWS

CARREFOUR DASHBOARD: STORES

CARREFOUR DASHBOARD: PCL RATIO

I think this is about data!

I think this is about facts!

I think this is about feelings!

Different

perspectives

• Higher TDSR for higher income profiles
• Low Credit to Debt Ratio for clients with low risks

RISK APPETITE

Customer Centric Driven Strategies for Profitable Growth

Growing

Collecting

Managing

Getting

Growing

Managing

Collecting

Collections - Collections strategies

- Welcome call

- Data update (CRM)

• Focus on cure rates - Risk segmentation/

demographics

• Champion Challenger

KEY RISK INITIATIVES

Customer Management - Optimize line mgmt - Early warnings

• Data mining & monit.
• Profitability back test
• Champion Challenger

Acquisition & Channel Management

- TDSR by income

• Early warnings
• Segmentation/

demographics

- Traffic light vintages BNS

• WAP
• SME scores: industry & collateral
• ROEE based origination
• Champion Challenger

Originations - Transactional data

- PLCC

-Transactor/Revolver

• Asses self employed
• Approval rate maxim. - Carrefour
• X - sell
• Champion Challenger

BUSINESS INTELLIGENCE & RISK TECHNOLOGY - PROBE, OPTIMIZER

BUSINESS INTELLIGENCE & RISK TECHNOLOGY - PROBE, NBSM

BACK

Example – Risk appetite breakdown

KEY RISK INITIATIVES SCOTIABANK

MARKET

FINANCIAL

*Circle size based on 2011 GDP Growth

*Circle size based on FY11 ROA %

CREDIT RISK

RISK APPETITE SUMMARY

Risk as a driver for profitable & sustainable growth

*Circle size based on FY11 Earnings/PCL (x)

Focused growth: credit policies adjustments

Note: The minimum and maximum risk appetite score is -8 and +8 respectively

Score

Credit to Debt Ratio

1

97%

2

95%

3

83%

Profile

Bad Rate

TDSR

4

81%

5

77%

Pionero

(Low Income)

50%

6

7

Clásico

(Mid Income)

65%

8

67%

9

54%

10

38%

80%

BACK

Monitoring credit strategy performance using early warnings BNS MEXICO

Early Warning: Ever60@18

Reject Zone (Exceptions)

Risk Levels

Thresholds defined at each risk level detect deterioration in the credit risk strategy, and can identify the source of early warnings

CHAMPION/CHALLENGER

NEXT

BACK

CARREFOUR DASHBOARD: PCL RATIO

CARREFOUR DASHBOARD: STORES

%PN es superior en independientes

Follow up on key metrics

Reducción del %CV de la peor tienda en un 1% mensual

Adapt & learn from market changes

Challenge status - quo

%PN de no verificados que el de verificados

De las 4 tiendas de Barranquilla, 3 son las peores por %CV dentro de todas las tiendas

effective

Reducción del %CV de Alquería del 19.46% al 17.63%

El perfil con peri %PN es Independiente Bajo G2

Constantly improving risk processes

La tienda con mayor %PN es Suba Valle de Lili que participa con el 3% del saldo

ective

Barranquilla cuenta con el peor %PN

Consistent statistical processes

Tool: Champion/Challenger

BACK

NBSM

BNS SME ‘Express Credit’ – Application Decision Tree

Key Pillars: Customer credit score & risk profile

Volume #% [$%]

Prob. Default

#100%

$100%

4.3%

Total Customer Exposure

#33%

$73%

5.1%

#67%

$27%

3.9%

Risk Rating

#4%

$2%

24%

#63%

$25%

2.8%

Cash

#16%

$5%

1.3%

#47%

$20%

3.3%

Credit Score

PROBE

OPTIMIZER

#16%

$7%

6.3%

#31%

$13%

1.7%

Eligibility

-Min 3 yrs in business

-Not currently31+; not 61+ 12mth

BACK

↑ Provisions SFC

BACK

Colpatria vs System 31+

BACK

PCL Ratio

Bank PCL Ratio %

Retail PCL Ratio %

On Going

Commercial PCL Ratio %

Mortgage PCL Ratio %

Potential additional increases on reserves due to credit performance of Bank´s portfolios

*Excludes Cayman & In Lieu Payments PCLs ‘07-11

BACK

Proposed Laws 2012

Court fee

Insolvency

Laws

• Natural person not trader with more than two 90 days overdue obligations, equivalent to more than 50% of the costumer liability.
• Procedure: Total debt negotiation on conciliation center .
• Impact: 100% recovery decrease on costumer up to date or in default.
• Current status: Final debate in the senate.

• Court fee rate modification 1.5%
• Change in the fee of payment: Fee when filling the lawsuit. Until now the fee was charged at the end of the legal process.
• Impact based on 2011 data, ↑2.399 MM.
• Current status: Final debate in the senate.

Extrajudicial

Collection Management Limits

Collection fees

• Pre legal collection fees may be charged only when the legal process is started.
• Impact : 90% of GYC income.
• Current status: Approved on the first debate of the house of representatives.

• Collection management control: Once the legal process is started it is forbidden to perform commercial actions unless that a debt relief is offered.
• The debtor may request the end to the extrajudicial collection.
• Current Status: Pending approval first debate of the house of representatives.