Financial institutions have identified credit risk management as a bigger issue than regulatory compliance, revealed a survey.
The research, from Risk Waters Group and SAS, said companies have identified longer-term benefits and economic rewards as top benefits for improving their credit risk management function, such as improved business and performance management and improved risk-based pricing.
Overwhelmingly the findings show that organisations anticipate significant rewards, including as 10% reduction in economic capital and a 14% reduction in the cost of credit losses, said SAS.
“If we apply this cost saving to a mid-sized global bank (one that stated a $1bn annual credit risk loss in its most recent annual report) then it is reasonable to assume that it could save around $140m per year through improved credit risk management,” said Peyman Mestchian, head of the risk management practice, SAS UK.
“The findings demonstrate that the ‘demand side' of the risk management marketplace has a strong awareness of the financial and business leverage that can be gained from improved credit risk management.
“We think it is ahead of the consultants and vendors on the ‘supply side' of the market who are still pushing the regulatory agenda, perhaps to reduce sales cycles.”
SAS said respondents had ranked data management as the biggest obstacle to the successful implementation of credit risk management systems.
“Under regulatory requirements organisations are required to hold counterparty data history and in many firms this will need to be sourced from disparate systems.
“Data management, including the reporting infrastructure and developing the credit risk warehouse still represents a huge part of the strategic challenge for many organisations, so it is no surprise that money continues to be invested at around 36% of total expenditure by respondents to address these requirements,” concluded Mestchian.
