The following is a summary of an article written by Luciano Bruccola and Alberto Nistico of the Experian Decision Analytics R&D team, discussing Assilea BDCR indexes and the methodology adopted to develop them. This originally featured in the monthly magazine of the Italian leasing association.

Original article available in Italian

Assilea (the Italian Leasing Association) established its Credit Register (BDCR) in 1989. With more than 600.000 leasing customers and more than a million contracts, the association’s Credit Register is an important source of information for Italian leasing companies. Back in 2001, Experian developed a value added tool for the BDCR to enrich its informational power by creating three risk indicators. Last year, Experian released the second generation.

Now, the BDCR can provide leasing companies with the three different risk indicators for all their inquiries, which provide an evaluation of an applicant’s creditworthiness both at application and account management stage. In more details:

• ES1 - Client Status: refers to the status of the existing contracts with the leasing sector as a whole. It shows the situation of each client in relation to the reimbursement of the leasing obligations, providing details regarding the level of delinquency;
• ES2 – Application risk indicator: developed using socio-demographic and product level information, it provides an estimation of an applicant defaulting in the medium term;
• ES3 – Behavioural risk indicator: developed using the information on customer payment behaviour with all outstanding obligations with the leasing sector. The score gives an estimation of the probability of a client defaulting within 12 months.

Tests have proved that the use of such bureau scores can lead to an improvement of the portfolio quality (thanks to the enhancement of selection and account management strategies). Benefits also include the reduction of operational costs, the possibility to offer different conditions in connection with the expected risk, more objectivity and speed in taking decisions and more control (thanks to the automation of the processes).

View the original article here

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