09.06.2021 Articles

Volatile Credit Risk Models

Following the rapid changes of risk levels due to health measures and political decisions, regulatory IRB models struggle to keep up, as they are based on historic data. Moreover, due to different governments’ actions aiming to safeguard national income and creditability, the assumption of future modelling bias could prove to be realistic.


Although the pandemic has depressed the macroeconomic outlook, a significant increase in defaults has not been observed yet. According to KPMG analysis, insolvency and NPL growth is expected in the near future, leading to further increases in IFRS 9 provisioning followed by further interventions from regulators and supervisors.

How can Banks respond to these challenging times?

To address these concerns institutions, need to deploy a differentiated approach in their operations rejuvenated by a need to accommodate a different working model. For this technology can again deliver a novel approach with the deployment of platforms to help monitor stress testing, scenario building and remote accessing on reporting to perform better risk calculation.

Deploying strategies that offer alternative ways to manage financial risk due to external parameters, becomes paramount. Governance, risk management and compliance are hot trends and firms are rushing to include these in their plans.

Digitisation is again the element to boost this for growth since it can easily monitor and support these changes with the use of powerful reporting and analytics. Big data, cloud and automation are elements that contribute to this success reducing cost and improving performance.

Digitalised Credit Risk Management becomes more than a trend.

The need for a modern approach utilising the latest technology in terms of Risk Management is probably the only way for financial institutions to effectively control and monitor credit risk during these volatile times.

What they can achieve?

  • Improve monitoring
  • Optimise and automate reporting
  • Streamline processes
  • Enhance market-risk

With the regulation of CRD II, Basel IV and more coming up most of the financial institutions legacy systems have to be modernised to provide a holistic view through different digital channels, using different sources to produce powerful reporting.

Regulatory reporting besides being a need it can also be a significant source of information to define a strategy that would offer painless operations. Modern platforms offer seamless integration with various IT systems, centralisation of data for better management and automated end to end regulatory reporting lead to improved data reconciliation, aggregation and standardisation. These require a system that has been built on scalable and modular architecture.

Profile’s RiskAvert has been implemented in a number of institutions to help them experience automation and powerful reporting. Click below to find out more on how you can improve your risk management processes.