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Credit scores and open banking’s real time perception

FCA study recently found that 14 million people were contending with the financial issues at the end of 2020, which represented more than a quarter of the UK’s adult population. The image is considerably tough for SMEs, which have been impacted majority by the lockdowns, loss of earnings and more. It is estimated that the pandemic will cost SMEs an extra of £173,000 debt per year which is resulting in a lack of lending options for both consumers and businesses of the expensive or high interest loans or even worse, getting rejection from the lenders all together. This in turn is luring an unaffordable lending and confined consumers and businesses in an ongoing and unsolvable debt cycle at the time when they need the maximum support.

One of the major causes of this lies of the lenders relying on the credit scores and credit bureau data to base their decisions which mostly are not accurate enough to actually get the complete picture of the borrower’s situation financially. Thus the use case of Open Banking data in lending decisions have been stronger than ever. The data accessed through this system lets the lenders to retrieve the apt information about the borrower’s financial history and assessments, therefore enabling a much faired lending decisions.

Taking NHS workers as an example, in spite of working tirelessly throughout the pandemic, NHS workers made up a sizeable portion of the UK adult population struggling with debt even now. The University Of Edinburgh Business School released an independent report with the partnership of Salad Projects, found NHS workers are heavily dependent on the long term over drafts and the high cost credit, where APR is extremely high as 1,333 per cent. Approximately 93 per cent of the respondents conveyed that they use only one type of credit or loan when compared to the 75 per cent in the wider UK population. According to the Financial Lives Survey more than half, i.e., 58 per cent use up to three loan providers and 68 per cent use up to four loan providers. The situation is the result of the sole reliance on the credit scores. Each credit reference agency has a different method for calculating a credit score. They rely on the financial history of previous defaults or failed to get credit, whether or not a consumer’s actual financial position and whether they have recently got a pay raise or a new income to see how likely it is that they will be pay back the money they have borrowed. It means that if the consumer’s financial position has changed, then they are enabled t get better loans because of the previous discrepancy.

Unlike credit scores, open banking gives the real-time perception into a person’s or a business’ financial position in the present. Lenders could achieve more liable outcomes by leveraging the data which is already readily available to them. This will help both businesses and individuals by reducing the threat of loan default and lead to more responsible lending choices which can help them recover back after what has been a tough year.

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Banking

Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banking

Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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Banking

BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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