Credit Early Warning

To withstand new regulatory pressures, financial institutions need to reset their value focus and digitize their credit risk processes.

Some of the pressure comes, directly or indirectly, from regulators; some from investors and new competitors; and some from the banks’ own customers.

Banks need to digitize their credit processes. Lending continues to be a key source of bank revenue across the retail, small and medium-size enterprise and corporate segments. Digital transformation in credit risk management brings greater transparency to risk profiles.

Banks may expand their business, through more targeted risk-based pricing, faster client service without sacrifice in risk levels, and more effective management of existing portfolios.

Data management and analytics. Rising customer use of digital-banking services and the increased data this generates create new opportunities and risks. First, banks can integrate new data sources and make them available for risk modeling. This can enhance the visibility of changing risk profiles from individuals to segments to the bank as a whole.

Credit risk costs can be further reduced through the integration of new data sources and the application of Augmented Analytics techniques. These improvements generate richer insights for better risk decisions and ensure more effective and forward-looking credit risk monitoring.

For big data–analytics projects, great quantities of data are needed, but how they should be structured is not usually apparent at the outset.

Some leading companies are moving toward utilizing a “data lake” an enterprise-wide platform that stores all data in the original unstructured form. This approach can improve organizational agility, but it requires that each project has the capability to structure the data and understand data biases.

From data input and management to decision making, from customer contact to execution, the initiatives should build step by step toward a seamless and interactive digital-risk function.

The digital transformation of existing credit risk tools, processes, and systems can address rising costs, regulatory complexity, and new customer preferences. The digital enablement of credit risk management means the automation of processes, a better customer experience, sounder decision making, and rapid delivery. Credit early warning systems will be the norm in the industry and banks that act now can attain enduring competitive advantage.