Banks Priority? Improve Credit Risk Models

FICO, a leading predictive analytics and decision management software company, and Efma today announced the results of the seventh European Credit Risk Survey, which measures retail bankers´ outlook for the availability of credit along with their investment priorities for the year ahead. In the February survey, completed by 130 credit risk professionals from 41 countries, the forecast for a “credit gap” between credit supply and demand fell sharply from the last survey, conducted this past fall. For consumers, the projected gap was just 4 percentage points, with 30 percent of respondents projecting some increase in the amount of credit requested and 26 percent projecting an increase in supply. By comparison, in the autumn 2012 survey the spread between projected demand and supply was a full 20 percentage points.

For small businesses, the gap was even smaller. In the new survey, 31 percent of respondents reported that they expect the aggregate amount of credit requested by small businesses to increase, and 29 percent expect the amount granted by lenders to also increase.

“Most of the new business growth in our corporate sector is coming from the SME segment,” said Dr. Cüneyt Sezgin, board and audit committee member at Turkey´s Garanti Bank in the FICO/Efma report. “Loans represent the primary relationship between banks and SMEs, as other financing alternatives for smaller companies are not well-developed in this market. Cash loans to SMEs represented 37 percent of total Turkish lira cash loans in 2012, and this ratio has been continuously increasing.”

“Despite the economic challenges in many countries, lenders are telling us they´re prepared to meet a modest increase in credit demand,” said Mike Gordon, senior vice president for FICO sales, services and marketing. “Given last month´s report that European banks have dramatically cut their Basel III capital shortfall, it appears that they gradually may be able to make more capital available for borrowers.”

European bankers also laid out their priorities for investment in analytics. More than 40 percent of respondents reported they will invest in improving their analytics, with the highest priorities being credit risk models for both new credit applicants (61 percent of respondents) and existing customers (50 percent). In addition, 38 percent of respondents said they will increase their investment in risk analytics that incorporate Big Data.

“Although consumer lending is a mature process using analytics to support risk classification, marketing, underwriting and authorizations, predictive models must constantly be calibrated to accommodate changes in consumers´ behavior,” said Manuel Goncalves, director of the Risk and Decision Models Unit at Portugal-based Millennium bcp in the report. “These changes are driven not only by the adverse economic context but also by greater mobility and social networking. At the same time, there are new and richer sources of data that can be used to improve risk management and deliver a better customer experience.”

The delinquency forecast was nearly unchanged from the last survey, with at least 40 percent of respondents forecasting an increase in delinquencies during the next six months on mortgages, credit cards and small business loans. “We don´t expect a reversal of this trend until the economies of Europe show greater recovery,” said Patrick Desmarès, secretary general of Efma. “That said, Europe is a heterogeneous region, with some countries preparing for a triple-dip recession while others, such as Turkey, look quite robust. The uncertainty across much of the region is particularly challenging for multi-national banks.”


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Putting The Pieces Together – Setting Up Your Credit Risk Team

Putting The Pieces Together – Setting Up Your Credit Risk Team

As startups, FinTech, InsTech, and other industries shake up the status quo, it’s more important than ever for the more established institutions to break out of their comfort zones. Break out, buck up, and keep up with those leading the pack in digital transformation. Personal data, privacy regulations, and password protections are just a few of things a Credit Risk team must consider when planning their Risk Management strategies. I spoke to Ewan Dunbar from our UK office about what businesses and candidates today need to know to stay on top of their game. Here’s what he had to say when I asked what the top three roles to consider in the industry were and how they worked together? Top 3 Roles in a Credit Risk Team Process Analyst - helps to identify, design, and monitor daily processes to ensure customer accounts are efficient and effectiveData Modeler – helps to segment large amounts of data into micro and macro trends using statistical analysis. This is where solid programming experience comes in such as R and Java, though SAS is still used in older organizations, it’s being used less so as new tech startups and innovators arise. Decision Science Analyst – This role sets the wider parameters of the company’s goals using quantitative measures, then drills down to determine the best possible course of action. How Do These 3 Roles Work Together? Let’s say a customer wishes to open a bank account. The initial paperwork to be filled out and filed, entered into the system, and monitored through its lifecycle would fall to the Process Analyst. Now, the customer wishes to apply for a credit card. Here, the Data Modeler is responsible for creating a scorecard model to predict, monitor, and evaluate the customer’s ability to make timely payments. The Decision Analyst is the relationship manager who has laid out the overarching goals and following facts, variables, and other data-driven insights communicates and translates the information in a clear manner. What Kind of Education Should I Have? Big Data continues to drive growth in every industry and, by 2020, experts predict an estimated 2.7 million open jobs in Big Data and Analytics. Though it’s been touted from the rooftops for the last few years, there still remains an urgent need for qualified professionals with specific skill sets to fill the gap in these industries. And they’re not easy to find.  For roles in Credit Risk, a brand name education is the name of the game. If you’re just graduating, you have a much higher chance if you come from a red brick or Ivy League background. Experience and a focus on such subjects as statistics, computer science, and mathematics are tailor-made for this industry.  Beyond education, it’s also important that companies ensure their employees have opportunities to upskill in the areas they need most. Training pays for itself as companies invest in their employees. One Last Piece of Advice  Find your niche. This is not a place for generalists. Once you’ve determined your focus and become an expert in your field, you’ll always be in high demand. If you’re looking to dig in your heels and get set up for a strong career path, we may have a role for you. Check out our latest Risk opportunities or contact one of our expert recruitment consultants to learn more.  For our West Coast Team, call (415) 614 - 4999 or send an email to sanfraninfo@harnham.com.   For our Mid-West and East Coast Teams, call (212) 796 - 6070 or send an email to newyorkinfo@harnham.com. 

RISK AND REWARD – YOUR RISK ANALYTICS TEAM

Apartment applications. Job applications. Credit card and bank applications. We’re sharing our data today like never before and with the advent of AI and other technological advances, we’re sharing at a more rapid rate. Data breaches and unethical behaviors give us pause before we jot down our most precious information but, ultimately, there’s no stemming the tide. So, who watches out for us, the customer and the company? Enter the Risk Management Team. It All Begins with Perception In May 2018, the General Data Protection Regulation (GDPR) became law across the European Union. Its goal? To place stringent requirements on how business handles customer data. Make no mistake, however, the need and the desire is not EU-specific. It is a matter of trust and security; something customers today demand, for the most part, before signing their information away to be organized, catalogued, and analyzed. Risk teams ensure your data will be used appropriately and ensure processes for future applications.  How do they do this? Risk teams need a cross-pollination of skillsets to help mitigate risk across industries. Often, risk begins in the financial sector, but it can also incorporate project management, data teams, marketing, sales, and Business Intelligence officials. And, with the advances of technology, they may also utilize Artificial Intelligence and Machine Learning to model historical data for future predictions. They must ask the right questions, ensure the right data is used for the right purpose, and validate their findings in a real-world environment. Roles of Risk Though in today’s market, everyone has a part to play, those who are focused on risk and considered part of the Risk Management Team might include the following: Chief Financial Officer (CFO) and Board Members or StakeholdersBusiness Analyst and Data Science OfficerRisk Analyst and Project ManagerStrategy and Predictive ModellerIT Marketing Together, these individuals work to challenge models, data, and decisions on behalf of customers while adhering to the company’s bottom line. Though Big Data and advanced analytics have evolved, the need to understand risks which differ in complexity, type, speed, and size remains. A few questions your Risk team might find itself asking, include: What is the impact of data and how it’s analyzed? Have we invested enough in human capital and technology, and advanced Data Analytics to focus on any potential risk including but not limited to cyber risk?Are our validations timely and appropriate? Who is responsible for decisions made by AI?Do we have the right people in place? The right tools? Are we willing and ready to challenge our data-driven and analytics-related risks?What’s our risk perspective? Do we have a good plan in place? Who will help us put one together and implement it? Ultimately, risk management in any sector, is the integration of people, processes and tools to ensure early identification and solution of risk across the enterprise. Setting the Stage or How to Get Your Risk Management Started Get buy-in from senior leadership and stakeholders as well as their commitment and dedicated participation to manage enterprise-wide risk.Make Risk Management a priority and enforce it throughout its life-cycle.Ensure technical and program management are both represented.Program management and engineering specialties should be communicated to ensure the right information is generated to help mitigate risk.Ensure risk team members, particularly those in program management, identify any concerns such as contracting, funding, costs, risks, and anything which might promote potentially dangerous ramifications if left unchecked. Even before your players are in place, you may want to consider a Risk Management Plan. Your team can help develop the parameters and implement it, but first you need to know what it is you need to watch. The CFO role in the risk team involves knowing who to pull together, what to look for, and to execute any cost-saving measures through a well-thought out plan to mitigate risk.  Four Items to Consider When Creating Your Credit Risk Team As important as technological advances have become to help mitigate risk, a business still needs human capital to analyze AI decisions and offer creative solution. So, the first two items to consider when building your team may seem unusually obvious. But, the second two, may not be so clearly necessary. These included oversight and systems-wide supply chain webs of data which must be carefully tended. TechnologyHuman Capital - Get everyone on board to ensure the program’s support; Assemble the appropriate people to assess the firm’s risks; Educate your team; Set your risk level.Supply Chain - Globalization has made companies’ supply chains more vulnerable than ever. Risk Governance - Conduct a SWOT analysis (Strengths/Weaknesses/Opportunities/Threats) to help engage your company members at every level as subtly work in broader educational efforts. Want to help the 99% have access to funds they need to live the lives they want? We may have a role for you. Take a look at our latest opportunities get in touch with one of our expert consultants to find out more.  For our West Coast Team, call (415) 614 - 4999 or send an email to sanfraninfo@harnham.com.   For our Mid-West and East Coast Teams, call (212) 796 - 6070 or send an email to newyorkinfo@harnham.com. 

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