Transport business in the Baltics is in recession, with only Lithuania experiencing a slightly brighter picture

Coface records recovery in air transport, but pre-pandemic figures not yet reached.

The transport sector is the one with the highest improvement in risk scores in the latest Coface Quarterly Survey, although the global macroeconomic outlook remains uncertain. Coface experts note that air transport forecasts and new aircraft orders are providing greater optimism. Transport business is rated higher in Western Europe, the Middle East and Japan, while in Central and Eastern Europe (CEE), including the Baltic states, the transport sector continues to be rated the highest risk. The transport sector in Estonia and Latvia is facing more challenges this year, while in Lithuania the situation has started to improve since Q2, with a decrease in bankruptcies and an increase in the forecasts for businesses.

According to Coface experts, the higher scores in the transport sector are mainly due to the recovery of the Chinese economy and global tourism, as well as to public policy decisions, such as the priority given to rail traffic in Germany. However, overall risks to the transport sector remain very high due to high energy costs and demand still below pre-pandemic levels.

Head of Coface Baltics, Mindaugas Sventickas, points out that it is air transport that has been the activity most affected in the global transport sector, and that it is now recovering rapidly. This is due to the gradual economic recovery from the second half of 2021 onwards, significantly influenced by the opening up of Japan (end of 2022) and China (early 2023), which has facilitated travel conditions for international tourists.

The Coface survey shows that while the number of commercial flights has increased and is now even above pre-pandemic levels, seat occupancy rates remain lower. For example, in the Asia-Pacific region, total passenger traffic in April 2023 increased by 171% compared to April last year, thanks in particular to China. Despite the strong growth, demand in this region remains lower than in 2019 (-18% in April 2023 compared to April 2019).

New orders for Airbus and Boeing aircraft are rising: aiming to fly greener and save fuel

In Western Europe and the United States, Airbus and Boeing have also reported an increase in aircraft orders, reaching 774 Boeing and 820 Airbus aircraft in 2022. At the 2022 Paris Air Show, a number of new orders were announced, with Air IndiGo ordering 500 A320 aircraft and Air India ordering 250 Airbus and 220 Boeing aircraft. According to the experts at Coface, this acceleration in the aerospace industry has prompted the decision to improve the risk assessment of the transport sector in some countries, e.g. France. Many of the production processes of Airbus are carried out in France, with production sites spread over Germany, Spain and the United Kingdom. This has contributed to a better assessment of the transport sector across Western Europe.

“It is also worth noting that the main players in the air transport industry are pursuing a strategy that takes environmental concerns into account. On the one hand, this motivates manufacturers to innovate in order to develop ‘cleaner’ aircraft. On the other hand, it encourages airlines to upgrade their fleets to use less energy,” comments Sventickas.

Cargo transport by sea decreases by almost one third

The situation is different in maritime transport, where activity is slowing down slightly after two exceptional years. Declining sea freight rates, high energy costs and stagflation are adversely affecting the financial performance of sea carriers. The revenues of Maersk and CMA CGM in Q1 2023 decreased by 26% and 30% respectively compared to Q1 last year, although they remain significantly higher than in Q1 2019.

This drop in revenue is primarily due to price effects (a fall in freight rates), while the drop in volumes is smaller, with a 3% annual decrease in the container index for January–April 2023. This drop in volumes is partly passed on to rail and motor transport, which is primarily used for the transport of cargo from ports.

Passenger transport in the Baltic States has not yet reached pre-pandemic levels

When analysing air passenger flows in the Baltic states for the period 2019–2023, the highest passenger traffic is traditionally observed in Q3 of each year. After the pandemic, air passenger traffic in all of the Baltic states, although slowly increasing, has not yet reached the levels recorded in 2019. For example, in Q3 2019, the number of air passengers in Estonia reached 954,000, in Latvia 2,299,000 and in Lithuania 1,821,000. In the same period last year (Q3 2022), the figures were 841,000 (88%), 1,711,000 (71%) and 1,677,000 (92%) respectively. According to Eurostat and Coface, the total number of passengers carried by air in the Baltic states in 2022 was 13,434, compared to 6,094 in 2021, 4,657 in 2020 and 17,548 in 2019.

The situation in rail passenger transport is slightly better. For example, in Q3 2019, the number of passengers in Estonia was 2,105,000, in Latvia 5,256,000 and in Lithuania 1,287,000. In the same period last year, the figures were 1,837,000 (87%), 4,835,000 (92%) and 1,292,000 (100%) respectively. The total number of passengers carried by rail in the Baltic states in 2022 was 27,289, compared to 21,069 in 2021, 22,085 in 2020 and 31,986 in 2019. In Q1 of this year, the figure for the Baltic countries was 6,485.

Sventickas notes that the Lithuanian transport sector is distinguished from other Baltic countries by more optimistic forecasts for 2023: “Although the situation in the Lithuanian transport sector deteriorated in the first quarter of this year, we have seen some positive trends since the second quarter of this year: the transport of freight by sea and water has stabilised and the transport of freight by land has returned to almost pre-pandemic levels. Since February this year, the forecasts of transport companies in Lithuania have become more stable, while previously they had been declining for several months.”

Creditinfo: Optimism of Lithuanian transport companies is good news for almost 200,000 employees in the sector

According to 2022 data, Lithuania’s transport and storage sector generated 11.2% of the country’s GDP, which is 2.6 times more than the average for other EU countries. In total, there are currently 8,568 transport and logistics companies in Lithuania, employing 171,300 people, i.e. a quarter more than in 2019.

Jekaterina Rojaka, Head of Business Development and Strategy at Creditinfo Lietuva, points out that the majority (72%) of companies in the transport sector in Lithuania are involved in road freight transport. According to the data of July this year, even 6,195 out of 8,568 transport companies registered in Lithuania indicate that their main activity is transportation of goods by land. Transport accounts for over 55% of Lithuania’s total exports of services. The number of air and water transport companies is 21 and 37 respectively; 2,233 companies in the sector provide storage and transport-related activities and 82 companies provide postal and courier services.

“During the pandemic, the risk exposure of Lithuanian transport companies increased due to travel restrictions, changes in the demand for goods, and then the rise in fuel prices,” says Rojaka. “In 2022, there was a sharp increase in the number of bankruptcies in the transport sector, which started to stabilise this year. In the first half of this year, bankruptcies in the transport sector accounted for only 6% of all company bankruptcies, compared to 24% in the trade sector and 20% in the construction sector. In total, 35 transport service companies have gone bankrupt since the beginning of the year, compared to 50 companies in the sector that went into bankruptcy in the same period last year.”

Rojaka says that although the number of bankruptcies of transport companies has decreased, the number of new companies has slowed down slightly: last year, despite bankruptcies, new companies were actively registering, while in the first four months of this year that number has contracted by 2%. According to a representative of the credit bureau, transport companies have started to borrow more, and the average debt of a company has increased by approximately 35%. There is also a lower number of companies with a low risk of bankruptcy, that is 58.1%, compared to the overall assessment of Lithuanian business of 69.5%. The share of companies in the transport sector experiencing financial difficulties in 2022 is lower than the national average, and amounts to 13.2% (compared to 17.6% for the economy as a whole).

“With the slowdown in domestic consumption in the EU, transport service providers continue to face challenges this year, with competition in the sector increasing due to limited demand, and service fees shrinking. Waterborne transport has seen a particularly sharp fall: The Baltic Dry index contracted by 57% over the year, and this year similar trends have been observed in road transport,” explains Rojaka. “The best short-term prospects for the sector at the moment are for airlines, which are steadily both increasing the number of flights and trying to rebuild the revenues lost in the pandemic. With inflation gradually slowing and demand stabilising, the situation for land and water transport companies should improve next year.”

Creditinfo Lithuania.

Visit: www.lt.creditinfo.com

www.creditinfo.com

Risk Management Framework

Risk management is an essential function for any bank, as it helps to protect the bank’s financial position, reputation, and long-term viability. An effective risk management framework consists of several key components that work together to identify, assess, and manage risks.

Risk Governance

The first key component of an effective risk management framework is risk governance. This involves establishing clear risk management policies, procedures, and guidelines that align with the bank’s overall strategy and objectives. The bank’s board of directors and senior management should be actively involved in setting risk management policies and overseeing the bank’s risk management activities.

Risk Identification

The second key component is risk identification. The bank should have a comprehensive risk identification process in place to identify all potential risks associated with its business activities, products, and services. This includes identifying internal and external risks such as credit risk, operational risk, market risk, and compliance risk.

Risk Assessment

Once risks are identified, the bank should assess the likelihood and impact of each identified risk to determine its potential impact on the bank’s overall operations, financial position, and reputation. This includes assessing the potential impact of risks on the bank’s customers, employees, and other stakeholders.

Risk Mitigation

The bank should develop and implement risk mitigation strategies to manage and reduce the likelihood and impact of identified risks. This may include implementing internal controls, establishing risk limits, and developing contingency plans.

Risk Monitoring

An effective risk management framework should include ongoing risk monitoring to ensure that the framework is functioning as intended. This involves continuously monitoring the bank’s risk management activities to identify emerging risks and ensure that existing risks are being effectively managed.

Risk Reporting

The bank should have a robust risk reporting framework in place to provide timely and accurate information on risk exposures and mitigation activities to the board of directors, senior management, and other stakeholders. Effective risk reporting helps ensure that the bank’s management team has the information they need to make informed decisions about risk management activities.

Risk Culture

Finally, an effective risk management framework should foster a risk-aware culture throughout the organization. This involves ensuring that all employees understand their roles and responsibilities in managing risks and are held accountable for their actions. A strong risk culture helps to ensure that risk management activities are integrated into the bank’s day-to-day operations.

In conclusion, an effective risk management framework is essential for banks to identify, assess, and manage risks. The key components of such a framework include risk governance, risk identification, risk assessment, risk mitigation, risk monitoring, risk reporting, and risk culture. By implementing an effective risk management framework, banks can effectively manage risks and protect their financial position, reputation, and long-term viability.

Joe Bowerbank,

Business Development, Creditinfo Group.

www.creditinfo.com

Credit Bureaus: Cross Border Data Sharing

In today’s globalized world, cross-border data sharing is becoming increasingly important for credit bureaus. By accessing data from multiple countries, credit bureaus can improve the accuracy and completeness of credit reports, assess the creditworthiness of non-citizens, and expand market opportunities for lenders. Let’s explore these benefits in more detail.

Improved accuracy and completeness of credit reports

Accessing data from multiple countries allows credit bureaus to gain a more comprehensive view of an individual’s credit history. For example, if someone has lived or worked in multiple countries, their credit history may be spread across different credit bureaus. Cross-border data sharing allows credit bureaus to combine this information into a single credit report, providing lenders with a more complete picture of the borrower’s creditworthiness. This can lead to more informed lending decisions and better risk management for lenders.

Assessment of creditworthiness for non-citizens

For non-citizens or individuals with limited credit histories, cross-border data sharing can be especially important. Without access to credit data from other countries, it can be difficult to assess their creditworthiness. Cross-border data sharing allows credit bureaus to access credit data from other countries, providing a more complete picture of the borrower’s credit history. This can help lenders make more informed lending decisions, expanding opportunities for creditworthy borrowers.

Increased market opportunities for lenders

By accessing data from multiple countries, credit bureaus can also help lenders expand into new markets. For example, a lender in one country may be interested in providing loans to individuals or businesses in another country. Without access to credit data from that country, it can be difficult to assess the creditworthiness of potential borrowers. Cross-border data sharing can provide lenders with the information they need to make informed lending decisions, opening up new opportunities and expanding their market reach.

Compliance with international regulations

In some cases, cross-border data sharing may be required by international regulations or agreements, such as the GDPR in the European Union. By complying with these regulations, credit bureaus can avoid legal and reputational risks. Additionally, complying with international regulations can help build trust with consumers and businesses, as it shows a commitment to ethical and responsible data practices.

In conclusion, cross-border data sharing is becoming increasingly important for credit bureaus. By providing access to a wider range of data sources, credit bureaus can improve the accuracy and completeness of credit reports, assess the creditworthiness of non-citizens, expand market opportunities for lenders, and comply with international regulations. As global data sharing becomes more common, it is likely that cross-border data sharing will become a standard practice for credit bureaus around the world.

Beny Benardi
Country manager, Indonesia.

Credit Bureaus and why they will remain important in the years to come

As the financial industry continues to evolve, credit bureaus need to continue to adapt. There are many compelling reasons why credit bureaus will continue to play a vital role in the future of lending and credit. In this blog, we’ll explore the benefits of credit bureaus and why they will remain important in the years to come.

1. Efficient and standardized credit data

Credit bureaus provide an efficient and standardized way to collect and store credit data. This allows lenders to quickly access the credit history and credit scores of potential borrowers, which is essential for making informed lending decisions. Without credit bureaus, lenders would need to spend more time and resources gathering credit data from various sources, which would slow down the lending process.

2. More accurate credit models

Credit bureaus are constantly refining their credit models to improve accuracy and predictiveness. By analysing large amounts of credit data, credit bureaus can develop more sophisticated credit models that consider a wide range of factors, such as payment histories, outstanding debts, and length of credit history. These models provide lenders with a more accurate picture of a borrower’s creditworthiness, helping to reduce the risk of defaults and delinquencies.

3. Increased access to credit

Credit bureaus play a critical role in expanding access to credit. By providing lenders with access to credit data, credit bureaus make it easier for individuals and businesses to obtain loans and credit cards. This is particularly important for people with limited credit histories or who have had past credit problems, as credit bureaus provide lenders with a way to evaluate these borrowers’ creditworthiness.

4. Protection against fraud and identity theft

Credit bureaus also play a key role in protecting consumers against fraud and identity theft. By monitoring credit reports for suspicious activity, credit bureaus can help detect and prevent fraudulent activity. Additionally, credit freezes and fraud alerts can be placed on credit reports to prevent unauthorized access to credit data.

5. Continued relevance in a changing industry

While the financial industry is evolving rapidly, credit bureaus will continue to be relevant in the future. As new technologies and data sources emerge, credit bureaus will adapt and incorporate these changes into their credit models. Additionally, credit bureaus will likely face increased competition from fintech startups and other companies, which will push them to innovate and improve their offerings.

In conclusion, credit bureaus are essential to the lending and credit industry. By providing lenders with access to credit data, credit bureaus make it easier for individuals and businesses to obtain loans and credit cards. Additionally, credit bureaus play a critical role in expanding access to credit, protecting consumers against fraud and identity theft, and adapting to a changing industry. As the financial industry continues to evolve, credit bureaus will remain a vital part of the lending and credit ecosystem.

Gary Brown,

Head of Commercial Development, Creditinfo Group.

The way leading to the ‘haven’ of Startups is grounded by Data Analysis

Lithuania‘s transformation to the startup-friendly country has been successful: last year the first “unicorn” appeared in the market, and the startup ecosystem at present includes over 900 enterprises which have the great potential for business development based on innovations. And yet, the general conception of the startups’ contribution to the country’s economy has remained stereotypical, as it is alleged that these are risky enterprises which rapidly emerge and dissolve, and that they create few workplaces. The latest analyses done by “Creditinfo” and “Startup Lithuania” reject these stereotypes.

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Interview with Catherine Muraga, CIO – Stanbic Bank Kenya

We interviewed Catherine Muraga the Chief Information Officer (CIO) at Stanbic Bank Kenya – one of the largest banks in Africa. Catherine is well versed with the Information Technology (IT) landscape having worked in different industry sectors including Manufacturing, Airline and Banking industry. She provides strategic vision and operational IT leadership for the Information Technology Department and controlling all IT functions. We asked her a few questions around COVID-19 and how Stanbic Bank is working around this pandemic.

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Creditinfo’s “CIP Score” Between evolution and improvement: a powerful tool for risk management in a more digital financial environment

The core business of commercial banks and other lenders, at the most basic level, is to sell money. To loan an amount with a negotiated re-payment schedule with interest, is a process that allows the economy to finance itself. But for this cycle to be sustainable in the long term, it must be carried out with both vigilance and responsibility. The “credit risk” of a client, their probability of reimbursement, and differentiating between “good” and “bad” clients are basic yet essential elements to loan in a profitable and durable manner.

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The evolution of retail credit in the banking sector in UEMOA

Covid – 19 has hit the world with a “double shock”: an unprecedented contraction in supply and demand coupled with a health-economic conundrum. For Africa, and the UEMOA region, the immediate picture is bleak.  However, there is hope if the financial sector uses the situation as a trigger for accelerated transformation of lending processes and products, taking the lead from other sub-Saharan markets and levering advantage of the robust financial infrastructure in place.

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Proactive Portfolio Management

The world is currently facing unprecedented economic challenges resulting from the COVID-19 pandemic. This was initially reflected in drops in oil prices, followed by the falling stock market and more recently employment levels. Research by the UN suggests global GDP is likely to shrink by around one per cent this year and could contract further if restrictions on economic activity extend beyond the second quarter.

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Thanks to Creditinfo, Estonia becomes the competence center of open banking

The Head of the company says a positive credit register is needed for boosting the Estonian credit market. Stefano Stoppani, Dubai-based Chairman of the Board of Creditinfo providing business information, solvency assessment and market analysis, intended to visit its offices in Estonia and the other Baltic countries in the beginning of March, but COVID-19 hampered with these plans. Europe is cautious in regulating both data protection and open banking. The aim of the PSD2 directive is to give third parties – licensed companies – access to a person’s bank account information. This is not done just because, but for providing better service, and obviously the account holder must authorize this. The third-party, for example, the creditor, can then see the income of the person and what the money is spent on. Information is needed to determine if the person is able to pay back the loan (s)he wants.

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