Journey to Credit Digitization: A View from the Banks

Credit and risk management professionals in financial services face numerous challenges every day. Volatile market conditions, increased regulatory scrutiny and fears of cyber security breaks are just some of the market pressures that have increased the need to work faster and smarter than ever before. This has driven many banks to look at ways to digitize their credit risk workflows to help streamline activities and improve efficiencies. Earlier in 2022, S&P Global Market Intelligence hosted a webinar to discuss digitization at banks and asked attendees their views on a number of issues. 

Digital transformation has never been more important at banks.

As margins are becoming squeezed and risks have increased with COVID and climate change, it has become imperative for banks to enhance their overall operating models by leveraging new technologies. Firms need to think about streamlining processes to increase efficiencies without sacrificing quality.

In addition to improved efficiencies and lower long-term costs, digitization enables improved risk controls at the portfolio level and the implementation of early warning signals of credit deterioration, which supports risk-based pricing and more. Efficiency and speed are becoming increasingly important to survive in a competitive market.

Half of webinar attendees said they are using a combination of internal and external resources for their digitization strategy.

Build versus buy is an important question. Using internal resources to digitize is an option, but requires enough resources and specialists to handle it from an IT perspective. On one hand, banks know their own data, where to retrieve it and where there are weaknesses. On the other hand, there is often a lack of know-how and the capacity to assign employees to digitization projects over long periods. That is why many find the most promising approach to date to be a combination of internal and external resources. Here, one buys the know-how that may be lacking and combines that with internal professionals who are well versed in the structures of the bank and can check the results accordingly.

In the end, the decision depends on the area of application. If a company hires an external firm to develop data, analyses and reports, for example, it may be necessary to provide a lot of internal data, which could raise regulatory issues about having client permission to do so. So, there are many factors to consider. For large-scale outsourcing, it is important to establish clear responsibilities on both sides, and then control and monitor activities. Another consideration is whether external companies will work on an exclusive basis or offer their services to many others. In the latter case, synergy effects can be achieved, but it may be more difficult to implement individual wishes.

40% said they are looking to digitization to enhance workflows for assessment and monitoring.

Many banks are rethinking the way that they approach digitization and seeing where it will be most beneficial. Of course, there is always the question of the cost versus benefit. In principle, almost everything could be digitized, but the issue is whether the budget is available and whether the long- term benefits are high enough. It also tends to be an evolutionary process. Many start with something as simple as an Excel Plug-in before more sophisticated technologies are introduced.

In addition to enhancing workflows for assessment and monitoring, digitizing processes are being implemented to gain faster access to both internal and external data.

Half see third parties helping most with analytics.

Analytics is an area that needs specific expertise, so it is not surprising that third-party support is needed here. Reporting is very specific and requirements can change quickly, so a manual effort is often used until formats have been finalized.

The pace of technological disruption at banks was supercharged by the pandemic, and there is now an even greater push to become digitally resilient to remain competitive. Credit and risk management teams are no exception, and a host of capabilities are being deployed to help streamline and automate risk assessment processes to improve efficiencies and stay ahead of the curve.

Watch the webinar for more information about digitization in banking.