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Tag: Credit Risk Management

What is a Career in Risk Management?

Posted on by Imarticus Learning

‘Prevention is better than cure’ – Desiderius Erasmus, Dutch philosopher.
In the world of finance, risk management is the process of identifying risk factors, analysing them and solving them in advance to ensure minimum threat to an organisation’s capital and earnings. The risks could be errors within the management, natural calamities, legal liabilities or financial uncertainty. Decisions are made to curb or reduce these risks. cours
Financial services aren’t all about numbers, it’s also about giving the right advice to the clients and helping build trust with them while also solving their problems.
Risk management also includes business units such as securities trading desks or loan origination departments.
As a risk manager, your responsibilities include

  1. Identifying the risk indicator
  2. Estimate the possible effects
  3. Come up with measures in order to control or eliminate the risks
  4. Assess the role of the other individuals in the project regarding how they can contribute to risk management

Given the rise in demand for risk managers, various universities are offering risk management courses specifically aimed at educating individuals about risk management.
Some of the best risk management courses are-

  • ORM (Operational Risk Management)
  • CCRA (Certified Credit Research Analyst) provided by AIWMI, India
  • FRM (Financial Risk Manager) provided by GARP, USA
  • PRM (Professional Risk Manager) provided by PRMIA UK

Altogether, a risk manager’s function can be summed up as taking clinical measures to prevent losses and securing the company’s assets. Problem solving, analytical skills, good communication skills and the ability to work under pressure are some of the requirements of a risk manager. To be a successful risk manager, it is very important to have sharp analytical insights. A risk manager is an utter failure if he can’t interpret data presented to him to reach a logical conclusion. Additionally, experience in law, accounting, insurance can also add value to one’s CV and provide more prospects.

Having good judgment and decision-making skills are essential. One should be a good leader and ensure that the team heads in the right direction. Some of the most important tools and techniques in risk management are brainstorming, analyzing the root cause, SWOT analysis, and risk register. A risk manager plays a very crucial role in any organisation. They are an invaluable asset to the company and play an important role in maintaining the fiscal health of the organization. The icing on the cake is that there are very few organisations that plan projects without assessing the risks involved. Hence, a risk manager has the chance to choose his employer from various organisations in the market.
A risk manager has the opportunity to don many hats during their career:

  • Risk management analyst
  • Risk advisor
  • Risk management consultant
  • Risk control supervisor
  • Chief risk officer

Due to the recent pandemic, the importance of having a risk manager has increased by three folds. Organizations globally have created risk committees hence boosting job growth.
The risk committees are responsible for planning solutions for a crisis and dealing with the losses the organizations have gone through as a result of shutting down operations for a few months. The pandemic has brought the risk managers onto the center stage. For risk managers, the job market has ample openings now and they should make the most of it.

Risk management is a well-paying job if you’re qualified enough and have the right degrees. It is a key business discipline. It adds value to an organization’s execution. The U.S. Bureau of Labor Statistics predicts job growth in the risk management sector at about 19% through 2026.

Risk managers are an asset to the organization and it’s their responsibility to keep the ship afloat and ensure that the company has minimum damages.

 

What are Currently Hot Trending Topics in Credit Risk Management

Posted on by Imarticus Learning

What are Currently Hot Trending Topics in Credit Risk Management

Credit risk Management has always been the number one pain-area for financial institutions that also run risks such as operational risks, technological risks, talent risks, and liquidity risk. The recent financial crisis in capital markets and the role of banks brings attention to the existing risk management systems and how they fall short in actually managing their credit risks. The ILFS, Jet Airways and DHFL defaults are just a few among the major losses caused by the failure of their lenders and counterparties in timely delivery of monies in interest and capital on their contracts. A second recession and starved capital markets may be a reality waiting to happen. That’s exactly the hottest topic on the minds of investors, lenders, banks, NBFCs and Fintech industries among many others who will bear the brunt. This makes Credit risk Management a hot top-priority topic today.

The trending Credit risk Management topics currently are

  1. Risk management and Modelling decisions need immediate attention with respect to the impaired assets IFRS9 norms of accounting.
  2. The latest Basel regulatory standards will impact advanced banks. It is anticipated that a lot of change will happen in the analytical requirements and modelling norms, especially after the recent financial crisis.
  3. How compliance will be impacted by the use of AI in making credit risk decisions both online and offline.
  4. Issues of conducting due-diligence and credit risk analysis.
  5. Capital lending risk management to NBFCs and Fintech startups.
  6. Increased foreclosures, bankruptcies and bank profitability under the Basel III norms.

What the Credit Risk Analyst Does

Banks issue loans and the interest they earn is a primary source of revenue. A CR analyst finds roles in the companies offering credit cards, NBFAs, the credit, lending and risk management divisions of commercial banks, and financial institutions. Their role is crucial to the bank’s profitability and Credit risk Management to manage and assess credit risks, evaluate loan applications, ensure credit-worth of the borrower, monitor credit policy compliance and regulatory lending norms. The CR analyst could be either the one who is facing the borrower or may be needed to ensure other staff members are equipped for loan decisions with insights, customer data, and credit reports. Since the credit risk analyst deals with financial statement analysis, the borrower’s history of credit and borrowings, the market and economic regulations and rates they are able to assess the risk of lending and whether the borrower has sufficient financial standing and asset security to fulfil the contract by paying the interest and principal back in a timely fashion.

The CR role is vital in maintaining and servicing of

Debt/equity ratio
The debt/equity ratio should ideally be 1.0. Lower this figure sounder the financial condition of the borrower and higher the ratio greater the risk of defaults. This ratio is an important index of the financing of the company. Thus one can assess the repayment capacity and also indicates if such funding is from their own-funds or from borrowings.
Credit Default Swaps:
The CDS is an excellent way of risk reduction and management of the CDS risk in bonds, debt securities, fixed income, and other derivatives. The CDS seller is insuring the investment risk by swapping the risks for a fixed fee where the seller is guaranteeing the financial instrument in debt and the buyer’s investment.
Conflicts between borrowers and the lender’s interest:
This question is about key issues at stake. On the one hand, it is important to maintain excellent relationships with existing clients who may need multi-million dollars in a single application. On the other hand, is the risk to the bank if it lends and the loan goes bad especially when your assessment reveals the possibility of it being an unsafe loan.

The latest Basel III proposed rules require higher capital and prohibit the use of any other models. The inhouse-models and customized models are to be shown the door from 2017 impacting the economy, financial markets, debtors and creditors including the money market funds, trading books etc.

According to a Capgemini report, firms are now are viewing risk-management more urgently and from an enterprise-wide holistic view in their quest for innovative techniques to manage credit risks more effectively. They are stepping up their IT investment in risk management. Asia, Europe and North America account for the most IT spends on credit risk management with the investments in 2011 being double the amounts in 2008. Obviously, the analysts for risk management will see a sharp rise in demand. The roles of people with the know-how of management will be essential and lucrative too.

Cash-in on the trend by doing the Credit risk Management Courses at Imarticus Learning. You can learn the subject under the finance, data analytics, banking and other streams offered, to make you risk-ready. Start today!

Also Read: Why Credit Risk Management is Important to Banks

What Is Credit Risk Management

Posted on by Imarticus Learning

When credit risks are effectively managed you meet the mandatory regulatory credit risk requirements and also go beyond the mandate and create better risk models for improvements in your business. The term credit risk evaluates the probability of the borrower not repaying the debt and thus causing loss.

This practice is widely used by banks to estimate the reserves for loan loss and the capital position at any given point of time. Mitigating losses and improving credit risk practice is a major challenge in banks and other financial institutions.

The practice of credit risk management and its regulation was in the limelight recently when the global financial crisis caused a major credit crunch. The regulators felt transparency was lacking in the norms followed by banking credit risk evaluators and sought to ascertain that the associated risk of lending to customers would need thorough customer knowledge and credit risk evaluation. Changes and introduction of new Basel-III regulations would be burdensome felt the banks.

Though many banks have complied in meeting the stringent mandated regulatory requirements by overhauling their credit risk approach, training staff through credit risk management courses and absorbing the higher costs incurred in terms of capital costs incurred treating credit risk as a mere compliance measure is being blinded. Better risk management does provide banks with the chance to get competitive and improve their performance indices.

Challenges faced:
Credit and risk management challenges are many and due to:

• Poor management of customer data and the inability to get the right data when it is most needed causing unnecessary delays.

• Lack of a modelling framework for group-wise credit risk implies that meaningful risk measures cannot and the banks are unable to generate the complex models that would provide a clear picture of the group-wide credit risk.

• Reworking model parameters are the Analysts task and are currently not amenable to change. Doing so actually affects the efficiency ratio of the bank and duplicates work.

• Risk tools are not comprehensive and without such a solution changes to identifying and re-grading portfolio concentrations affects the risk-solution itself and proves ineffective in credit risk management.

• Reporting tasks are cumbersome and the manual reporting methods using spreadsheets and other reporting processes cause an overburdening of IT staff and analysts.

Credit Risk Management Best Practices:

Risk evaluation:
Evaluate the credit risk at multi-levels starting from the individual portfolio, client portfolio and then banking portfolio levels. This will provide a better and more complete understanding of the risks involved and lead to better overall risk management.

Data norms:
Banks data and risk profiles lie in SBUs and branches. Without integrating such data a thorough risk assessment or an integrated knowledge of risk-profiles makes assessing the risk of capital-reserve sufficiency, loan-loss reserves, and short-term loan losses difficult to assess or manage.

That’s why both investors and regulators look closely at the credit-risk management practices used. Vulnerability to such non-transparently evaluated risks can lead to crippling losses.

The Effective Solution:
The only way out of this situation is to have robust solutions that reflect the exact relationship of credit risk profiles and the offsets for capital reserves and loan-losses. A quantitative well-integrated credit risk solution includes:

• Model management that covers the entire credit risk lifecycle.

• Monitoring effectively and in real-time the credit limits and scores.

• Capacity for stress-testing of credit risk management.

• Capacity for data visualization and tools for BI to help place data at the right time in the right hands for enabled decision making.

Such a solution with simple portfolio curbs and measures should help banks ramp up to sophisticated and more transparent credit risk management practices and measures allowing for the need to grow and evolve with use and practice.

In modern day banking and new-age banking, a lot of technology has improved and continues to evolve banking practice especially risk management and compliance through better data analytics and predictive insights. Learn how such measures taught I credit risk management courses can help you specialize in banking.

At Imarticus, credit risk management course is a part of our banking courses and goes a step forward by teaching you the analytical best practices to effectively handle credit-risk, compliance and regulatory measures.

Always learn with the best! The banking and financial courses are par excellence with outstanding curriculum coverage, assured placement, soft-skill development and such modules that help you make a quick break into banking as a career.

Big Data in Risk Management

Posted on by Imarticus Learning

We all know that over 90% of the world’s data has been generated only in the last two years. Forward-looking organizations, especially e-commerce, have already begun capitalizing on this gold mine. But what does the Big Data revolution mean for financial services, particularly the risk management function?
Risk management faces new demands and challenges. In response to the spate of recent financial crises, regulators are insisting on ever more detailed data and increasingly sophisticated reporting. Banks are now required to conduct regular, comprehensive bottom-up stress tests for a variety of scenarios across all major asset classes.

Put simply, Big Data represents the future of risk management. Why? Big Data technologies can help Risk teams gain better intelligence, drawn from a variety of data sources, in almost real-time. Within the financial services industry, Big Data can enable asset managers, banks and insurance companies to proactively detect potential risks, react much faster and kimore effectively, and make better decisions on the back of insights from thousands of risk variables.
Time is a critical factor in reacting to risks, and if you can react faster to dynamic risk factors, you have a competitive advantage.
Worried about fraud on the trading floor? Rather than manually track staff trading actions, data lakes enable you to retrieve an instant snapshot of an activity, including data from chat room sites, mobile phones, and swipe in/ out records. Suspicious transactions can be identified and stopped as they are happening in real time, before incurring huge fines and damaging your firm’s reputation.
Big Data Analytics has already proved its mettle within e-commerce, and will surely be a game changer for risk professionals. And don’t worry – this new technology is merely one more tool in a risk manager’s arsenal. It does not, and should not, replace the human element — Identifying what’s a signal and what’s merely noise, what you react to and what you ignore is still a judgment you need to make.
Learn more about the applications of Big Data in Risk Management in our next executive development program, which will be conducted on 21st and 22nd September in Mumbai. Click here to learn more.