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Tag: risk management course

Using AI models for credit risk assessments can help financial institutions make smarter decisions to boost the customer life cycle

Posted on by Imarticus Learning

Credit risk may vary differently depending on the type and amount of credit, but now there are new methods to assess it. Artificial intelligence models are the next step up from traditional scoring systems and offer a more nuanced look at your customers.

The use of AI models for credit risk assessment has been on the rise in recent years. It’s easy to see, unlike traditional scoring systems, these models provide a more nuanced view of customers and their financial history.

With this information, you can ensure that reliable data will back any loans or other financial products offered.

This article helps you to understand AI-based credit scoring models and how they help make your business more profitable.

AI-based credit scoring model: 

It is about improving the transparency of credit through increased access to information, higher credit standards, and improved risk assessment.

The big contribution of the AI-based credit score model is not only figuring out people’s real identity or whether they are eligible for loans. Instead, it changes the old idea that people who make more money could easily get a loan.

The model evaluates borrowers not by personal income levels but by risk factors, including employment history, credit report, assets, and liabilities.

This way, when making decisions about an individual’s eligibility for loans without lessening the effect on others in society.

Consumers can be evaluated according to their implications rather than just their income level- thus decreasing the incidence of the poverty cycle.

Benefits of integrating AI credit risk assessment model 

AI is fast, smart, and efficient at making decisions without any biases or emotions getting involved. This means you can make more informed financial decisions based on scale data from the entire population.

AI-based solutions transform credit scoring in several ways. Involving such a model can help the financial institutions as follows:

  • With the support of the AI credit score model, financial institutions can learn about their customer’s financial behavior based on historical data and potential income forecasting. Such analyses help the institutions to sell their credit plans to the right category of clients.
  • AI model offers greater speed without compromising quality or precision. The lending decision is much easier than traditional methods where banks used to apply decision trees, regression, and complicated arithmetic analyses to generate the client’s credit score.
  • AI smart applications are available to check the customer’s creditworthiness and maximum credit limit.
  • It has allowed the banks to increase the customers’ lifetime value by engaging with them continuously and intelligently to strengthen each relationship across diverse products and services.
  • Increased profits due to efficient targeting of low-risk loans. Both economic and efficiency terms benefit from reduced bankruptcy rates.

Learn more with Imarticus Learning:

Imarticus Learning presents credit risk management courses that help to understand India’s credit landscape and the entire loan assessment process.

Our Credit Risk Management Course USPs:

  • Quality learning experience through learning pedagogy consists of 145 hours of live lectures.
  • The comprehensive credit risk management courses strongly emphasize the digital innovation that is disrupting the lending space.
  • Helping to build a career in banks, NBFCs, and start-ups through resume enhancing workshops, interview preparation sessions, and mentorship.
  • Holistic, well-rounded, and practical curriculum designed and delivered in collaboration with Moody’s Analytics.

For further details, contact us through the Live Chat Support system or visit our training centers in Mumbai, Thane, Pune, Chennai, Bengaluru, Delhi, and Gurgaon.

How do financial institutions focus on strengthening the quality of loan portfolio while mitigating credit risk underwriting?

Posted on by Imarticus Learning

With the financial market changing and evolving with trends, the credit market has changed as well. The reason being more & more people are seeking credit from the lending market.

This increased graph of credit-sourcing has created an environment where competition among lenders has reached a fever pitch, with banks and other financial institutions fighting tooth and nail for market share.

But if you’re looking to get ahead of the pack, it pays to think outside the box. By developing a loan portfolio, you may have to include not just high-interest installment loans but also low-interest refinancing options.

In this blog post, we’ll take a deep dive into the world of portfolio analysis and credit risk.

What Is Credit Risk Underwriting? 

Credit risk underwriting is the process of building a credit profile for an individual to determine their creditworthiness. It can be considered as “due diligence” between lenders and potential borrowers.

Under this process, customer data such as employment history, income stability, and general suitability is reviewed to determine if individuals pose a default risk. However, it’s important to note that every lender has its criteria that individuals must meet to be accepted into an agreement.

Effective Ways financial institutions may use to strengthen the loan portfolio: 

A strong credit culture is an essential ingredient to the success of any bank. A loan portfolio with high-quality, low-risk loans provides stability for customers looking to invest in local businesses.

1. Cultivate a relationship with service providers: 

Learning about new lending opportunities and sharing them with your potential borrowers helps strengthen your relationship with accountants, attorneys, insurance agents, and other vendors.

Creating a good impact will help you on top of the mind of professionals, and whenever someone needs financial assistance, they can refer to you.

 2. Get regular updates from the line lenders: 

Managers are constantly on the lookout for updates from line lenders. They need to know what’s in their pipeline, how prospects are progressing, and other potential financing opportunities that might arise at any given time.

3. Update the prospects detail regularly: 

The prospect database should remain accurate and up-to-date. Contacting the right person will save your time, which means that their contact information becomes invaluable when it comes down to deciding who should receive your message most efficiently!

4. Review customer’s financial information: 

Expanding your reach by using customers’ financial data can help to identify their area of need. Following this, you may call the prospect with a solution that meets all those requirements or at least narrows them down for more focused marketing efforts.

Get More Insights into Loan Portfolio with Imarticus Learning: 

Imarticus Learning offers an in-depth understanding of credit risk and underwriting through their 145+ credit analyst course.

The credit risk analyst course mainly covers credit underwriting, credit administration, legal and regulatory requirement, and the impact of new-age technology.

 Our course USPs: 

What is all the Hype About Commodity Market Investments?

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What is the commodity market?

Commodity investment is the buying and selling of different types of commodities like agricultural products and livestock (soft commodities), and metals and energy products (hard commodities). These products can be bought and sold in bulk.

The commodity market has been around for a very long time, the number of investors is still limited. However, this has changed over the past few years. This money market has become wildly popular and is often used by manufacturers and wholesale traders. Just like the stock market, there are several online platforms available that deal with investments in the commodity market.

How is the commodity market related to the stock market?  

The prices in the commodity market often fluctuate depending on the demand and supply of the product and services. If the supply is in abundance, the price goes down, if the supply is less and demand is more, the price automatically increases.

The commodity market and the financial market have a negative correlation. For example, the rising prices in oil and gas have often been linked to lower prices in the stock market and high prices in the stock market would mean that oil prices have decreased. Similarly, during high inflation, the prices of commodities remain high and when inflation is lower, stocks and bonds tend to perform better.

Non-fuel commodity prices were 38% higher in April 2021 than the same month in 2020. That is the highest rate of growth since 1970. This shows that the world has entered into the mode of “supercycle” where there are going to be a lot of economic changes globally and commodities are going to increase.

Why should you consider investing in the commodity market?

The commodity market is considered a safe investment. Also, this money market holds great value under the economy of the country as well as those who make a living out of it. Here’s why you should consider investing in the commodity market –

  •       Better quality – The market is very strict about the quality of the commodity during the trade. This benefits the buyer and the seller.

  •       Price discovery – The market guarantees transparent ways to identify the original prices of the commodities. This ensures that the commodities are not sold at cheaper rates to middlemen.

  •       Risk management – The sellers of the commodities have various tools like futures and options for risk management and to deal with their losses.

  •       Safety – Trading in commodities can be considered a great way to diversify their portfolios. Investing in commodities can safeguard their capital if the stock market falls.

  •       Margin trading – There is always a leveraged margin when trading in commodities. Large transactions can be done with a little amount of cash in hand.

 Stock markets give speedy returns while the commodity market is gradual. There are high returns possible in the latter as well but the investor should have an expert insight. One cannot predict the prices in this market that changes rapidly.

An individual must be well-versed with the economy of the country as well as international trade before they choose to invest in the commodity market because although it is safe, there may be some risks involved. To understand how to manage those risks, there are risk management courses available online, which will guide you thoroughly. 

Management Development Programme on Operational Risk Management

Posted on by Imarticus Learning

by Zenobia Sethna
 
Imarticus Learning held an exclusive Management Development Programme on Operational Risk Management in Mumbai on 21st and 22nd January, 2016 for senior management in Operational Risk.

This risk management course delivered an intensive, methodical and practical understanding of operational risk management in financial institutions.  At the end of the workshop, participants were equipped with world-class knowledge to develop and implement end to end global best practices, frameworks and platforms in operational risk management.

The Key Topics that were covered were:

  • Designing and implementing an effective operational risk management platform
  • Executing an operational risk assessment and measurement program
  • Capturing, reporting and investigating operational risk events
  • Producing meaningful Risk MI including KRI data and trend analysis
  • Implementing operational risk appetite
  • Best practice models and methodologies for operational risk management

The Case Studies covered in the Workshop were:

  1. A leading full service commercial and investment bank headquartered in Asia
  2. A major German bank with significant presence in Asia
  3. A major global futures exchange based out of Asia

Participants comprised a diverse mix of senior management from leading banks and financial institutions including Cognizant, Yes Bank, ICICI Bank, Deutsche Bank, HSBC, and Reliance Capital.
About the Speaker: Dr. Chakravarty’s global reputation and experience in risk trainer-profile-minmanagement and Risk control spans over 22 years and senior leadership positions in top tier international banking and financial institutions across wall street, Europe and Asia. A specialist in risk management at Bankers Trust New York (now Deutsche Bank), Bank Boston (now Bank of America Merrill Lynch) and GE Capital in the US, he was an early developer of stress testing and scenario analysis methodologies and one of the investment banking industry’s first implementers of RAROC.

Stay tuned to know more about the upcoming MDP workshops by Imarticus.

Which Are The Important Financial Modeling Techniques That Makes A Model Flexible?

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Which Are The Important Financial Modeling Techniques That Makes A Model Flexible?

Flexibility or rather, variability and simulation of a scenario under different conditions is the end goal of a model. Here are some of the various techniques you can use to make a model more adaptable.

• Model assumptions clearly– the first step to creating a workable model is to always document the delta assumption. What does that mean? As discussed earlier, if you want to say that you forecast sales of firecrackers during Diwali to up by 15 percent from 2015, then you model in the assumption.

The origin value is, let’s say, 1000 crackers sold in 2015. The result would be (1000 *0.15) + 1000 which would equal 1150 crackers sold in 2016. But you have to document the 0.15 clearly so that if someone wanted to change that assumption to 20 %, then they would just need to key 20% in instead of 15 and the entire model would change.

• Created more detailed assumptions – While complex models are generally less robust due to higher chances of linkage issues etc, there needs to be some amount of complexity for a model to be useful. For instance, we want to forecast revenue from the sale of fireworks from 2015 to 2016.

The first would be to break the Rs 1000 up into the various products like sparklers, (30% of 1000) flowerpots, and the like.

Once that happens you need to break sales into its component. Sales equal price into quantity. So instead of saying, arbitrarily, that the total sales of sparklers go up from Rs 300 to Rs 345 (a jump of 15%) in 2016, you would say that the number of sparklers would go from 100 sparklers to 115 (model in the 15%) sparklers while the price of the sparkler (Rs 3 per piece ) did not increase at all. (the model in the 0%) The flexibility comes in when I change the cell that holes from 0% to 10%.

This would make the price of the sparkler go up from Rs 3 to Rs 3.30 which would lead to a total sales of Rs 379.5.

• Use a spin button– A spinner helps model variability especially as it relates to stepping costs. So let’s say that for every extra Rs 200 I make in sales, I need to add one extra salesperson. That is not a variable cost. That is a steep cost. So when my sales go up 15% from Rs 1000 to Rs 1150, I don’t need an extra salesperson.

But what if I want to sell 1250. I need to add one more salesperson. A spin button does the job for you. Every time increment sales go up by Rs 200, one extra person at a salary of Rs x a month will be added to that cell, thereby making your model more adaptable and robust.

The Importance of Financial Risk Management

Posted on by Imarticus Learning

Managing financial risk is an essential component of any successful business. Specialized financial risk management teams are hired to guide a company through the financial market’s turbulent waters and create strategies to avoid losses and maximize profits as much as possible. Although seemingly scientific, the process is convoluted and never exact, therefore requirement an excellent amount of expertise in financial markets.

Firstly, what is financial risk management training? It’s the approach used to reduce adverse financial effects that emerge from risks and uncertainties. In simpler terms, it’s the process of putting in place strategies that work to protect money when unforeseen events occur in a business, as they tend to do. There are generally four types of risk today:

  • Market risk
  • Liquidity risk
  • Operation risk
  • Credit risk

These are almost never mutually exclusive but often overlap in scenarios, which makes financial risk management planning that much more complex and important.

Here are a few reasons why financial risk management is important:

Reduces financial disasters

Every business seeks an upward spike in the revenue and profits graph, no matter what industry they belong to. However, every business has a set of risks they are likely to face– planning for these makes the firm less likely to fall prey to losses as an effect of these risks. Financial risk management in these scenarios could range from the prevention of unsound investments to putting out products that are unlikely to sell or be profitable.

Predicts bountiful opportunities

In tandem with reducing financial disasters, financial risk management also aims to identify what investments, plans, and strategies are going to be most profitable for a business. This enables firms to act quickly and wisely to capitalize on benefits in good time– naturally, any profitable investment will also benefit stakeholders. No matter how quick or drawn out the decision maybe, if it’s financial in nature, the risk management team was sure to have been involved.

Keeps ahead of the competition

Competition is everything in the market, and one financial stumble can cost a business dearly. A business with a strong, well-formulated financial risk management plan is accounting for a multi-player field that is not always level. It’s also preparing in advance for any stumbling blocks to avoid losing pace and allowing competitors to get ahead.

Assesses internal and external risks

Risks can be internal or external. Some examples of external risks are market fluctuations, political unsettlement, inflation and deflation, and interest rates among others. Internal risks include security breaches, non-compliance, and information leaks. In business, internal risks can largely be controlled by way of strategies and implementations– however, in that sense, external risks can’t be controlled and are therefore harder to recover from. It’s always better to prepare for this uncertainty with a bullet-proof game plan that protects finances come what may.

Conclusion

In the past few years, several companies have introduced strong risk management teams to protect finances and prevent losses to the company through untoward incidents or ill-thought-out strategies. Therefore, risk management jobs are always in demand– it’s a field that keeps on growing, due to its very dynamic nature and the pushes and pulls of external risks that are seemingly unrelated but very influential.

Financial risk management plans function as the GPS of a company, guiding them towards their future financial objectives while taking the fastest, smoothest route.

Is Risk Management a Good Career?

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Risk management is the process of evaluating financial risks associated with a particular project or business decision taken by a particular company and then taking necessary actions to minimize such risks.

Risk management also factors in the elements of forecasting thus predicting any unfortunate incidents which may affect the company in a negative way and taking necessary measures to minimize the impact of such risks on the company’s image and profitability. It is a challenging activity as predicting future and its repercussions is not a cakewalk but at the same time, it’s exciting as it gives your brain a hard time in taking out solutions from hazy questions.

Who is it for?

Risks can be managed well by people who have a knack towards finding loopholes and problems and coming out with various alternate solutions for those problems. It is a perfect career for someone who has a creative bent of mind and who can answer all the questions a business has in financial terms.

Risk managers analyze the current situation of a company and the dynamic environment that envelops it. Then various upcoming policies and social factors are taken into consideration to check if they are helping the project in hand in any way or making it more difficult for the project to elbow its way out.

Is it a good career option?

What makes a role a good career option? The most important aspect of any career prospect is its sustainability- whether the market would need this job function in the future or not. Running a business or a company is a progressive process and people have to make long term business decisions to make things work.

Analyzing the risks which come from futuristic plans can only be done by a risk manager who has expertise in coming up with the alternatives for any unseen event. Risk managers aren’t going anywhere. The constant need for managing risks makes it an “on-demand” role.

Risk management course is different for companies belonging to different sectors as the exposure to risk in every sector is different. The automotive industry may be exposed to a higher risk at all times whereas the woolen garment industry is seasonal and thus has less risk involved than the former.  So, there is no standard process of measuring risk and this poses a challenge as a risk manager along with his job will also have to keep a tap on the dynamic environment and the changing scenarios.

Most of the skills learned by the risk managers are “on the job” which might bring in a lot of internal competition but also will be a good area of skill development. To be an efficient and effective risk manager you need to know the whole business inside out- Its customers, its employees, laws that affect the company and so on.

Someone with a strong aptitude and an acumen for problem-solving would be a great fit for being a risk manager. They play the most important role in maintaining the fiscal health of a particular company. They have to use their knowledge on various financial instruments in making the best out of a risky situation hence controlling the intensity of negative impacts. If you comply with the prerequisites of being a risk manager, it is most likely that you will be satisfied with your work.

Conclusion

Every career option has its own set of challenges but you will have to overcome them to emerge victoriously. A career in risk management will keep you on toes by throwing all sorts of challenges but will also make your work dynamic and exciting.

A Beginners’ Guide Investing in The Stock Market

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There is no better way to learn than by doing. So we at Imarticus Learning believe that the best way to prepare for an interview for Corporate Finance jobs is to actively invest in the market in whichever way possible thereby putting some ‘skin in the game’, which ensures you know what’s going on. While FMVC and our Diploma in Corporate finance focus on Interview Prep using mock interviews and providing sample questions, we always encourage our students to actively participate in the stock market by opening Phantom Accounts.
Before you begin actively investing, you need to answer a few questions :

1. What are you doing this for? If you are doing it for the course, we advise you to open a phantom account, which essentially means you do everything but invest real money. Regardless of if you open a phantom account or the real thing, the following steps will help.
2. What kind of investor are you? Are you a risk taker, risk-averse, or a little bit of both? This is what we call investor profiling and we delve into this a great deal in our Retail Banking and Wealth Management Diploma, one of India’s leading programs/courses in Retail Banking and Wealth Management. Being a risk taker is simple. It requires a strong stomach and a healthy attitude to losing some money because the equity market is volatile. While you will be making decisions based on sound analysis, sometimes things go wrong and you could lose all your capital, hard earned money you have been saving for a long time. How do you feel about that? If you shudder at the thought and think you will lose a lot of sleep then you are probably risk averse. Once you realize this, you can then invest your portfolio keeping that in mind and put aside a small amount for risky ventures that offer spectacular returns and perhaps put the rest in conservative investments with lower returns.
3. How much time do you have? Picking stocks is hard work and there’s a reason why Mutual fund managers get paid so much to do it. So if you don’t have the time, we suggest starting out with an index fund like Franklin India Index or HDFC Index Fund – Sensex. An index fund is a mutual fund that invests in a predefined stocks of an index in a percentage allocation that resembles the index. Your portfolio could be a mix of different index funds, NSE Small caps, BSE Sensex and maybe even an international index fund.
4. I want to invest individually. We suggest creating your own index fund and take control of the percentage allocation thereby doing some work of your own while having the Sensex as a guide. If you plan to move away from the index, then create a portfolio of 12-20 well-chosen stocks that are extremely well covered and have excellent investor relations.
Here are some broad rules
a. Don’t put all your eggs in one basket or one sector
b. Understand the concept of defensive stocks and cyclicality
c. Don’t completely trust your broker but aim to create a good relationship
d. If you plan to invest using an online platform- the preferred method, then remember to read, research and plan meticulously and keep a record and mark to market regularly
Our next blog post will focus on the technicalities of opening your first account as well understanding various stock market terminology.

 

Harnessing the benefits of Financial Innovation – Part 2

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Harnessing the benefits of Financial Innovation rather than falling prey to its demons
by Rajat Bhatia
 
FINANCIAL INNOVATION AND 25-SIGMA“FINANCIAL CHERNOBYLS”:
During the 2007-2008 financial crisis, the CFO of Goldman Sachs, David Viniar, announced in August 2007 that Goldman’s flagship GEO hedge fund had lost 27% of its value since the start of the year. Mr. Viniar explained, “We were seeing things that were 25-standard deviation moves, several days in a row.”

One commentator wryly noted:
That Viniar. What a comic. According to Goldman’s mathematical models, August, Year of Our Lord 2007, was a very special month. Things were  happening that were only supposed to happen once in every 100,000 years. Either that … or Goldman’s models were wrong (Bonner, 2007). 

To give a more down to earth comparison, on February 29 2008, the UK National Lottery is currently was offering a prize of £2.5m for a ticket costing £1. Assuming it to be a fair bet, the probability of winning the lottery on any given attempt is therefore 0.0000004. The probability of winning the lottery n times in a row is therefore 0.0000004^n , and the probability of a 25 sigma event is comparable to the probability of winning the lottery 21 or 22 times in a row.

But sadly Goldman were not alone. In 2007 alone, massive losses were announced by Bear Stearns, UBS, Merrill Lynch and Citigroup, and then there were the earlier financial disasters – 1987, Daiwa, Barings, Long-Term Capital, the dotcoms, Russia, East Asia, and so on – and afterwards Société Générale and Bear Stearns again in early 2008, with rumours of more yet to come.

Citi’s case was particularly interesting. To quote from the same commentator:
Gary Crittenden, Citi’s chief financial officer, claimed … that the firm was simply a victim of unforeseen events. … No mention was made of the previous five years, when Citi was busily consolidating mortgage debt from people who weren’t going to repay … pronouncing it ‘investment grade’ … mongering it to its clients … and stuffing it into its own portfolio … while paying itself billions in fees and bonuses. No, according to the masters of the universe, downgrades by Moody’s and Fitch’s were completely unexpected … like the eruption of Vesuvius; even the gods were caught off guard. Apparently, as of September 30th, Citigroup’s subprime portfolio was worth  every penny of the $55 billion that Citi’s models said it was worth. Then, whoa, in came one of those 25-sigma events. Citi was whacked by a once-in-a-blue-moon fat tail.

FINANCIAL ENGINEERING AND THE MAJOR GLOBAL BANKS
An analysis of the behavior of stock prices of major global banks and derivatives houses during the last five years paints an interesting picture. With the exception of Macquarie Group, an Australia based global investment banking and derivatives firm, whose stock price is up 124% over the last five years and JP Morgan whose stock is up 45% over the same period, all the other banks who are active in investment banking, financial markets and OTC derivatives, are in the red. It is worth noting that the S&P 500 index is up 47% in the same period and HDFC Bank, an India based bank focused on consumer banking and working capital finance recorded an increase in its stock price by 125%.
Stock price performance of major banking institutions benchmarked against S&P 500 over the last five years ending on 26 February 2016.

Clearly, the derivatives, structured products and financial engineering firms are facing headwinds. These headwinds, have been most pronounced in the case of two European banks (1). Deutsche Bank whose stock price is down 67% over the last five years and which has been rumored to be running into the reefs just like Lehman Brothers did in 2008; and (2). Credit Suisse whose stock price is down 63%.
 

In the final post by Rajat Bhatia, we will talk about lessons learned from the wave of financial innovation. You do not want to miss that!
This, of course, is just a teaser to what you can expect at o
ur 2-day Management Development Program on Structured Products and Financial Engineering by Rajat Bhatia on 28th and 29th April, 2016. Enrol Now!