CASE STUDY

Achieving Incremental Credit Loss Savings for a Financial Institution Through Credit Risk Management

Apr 15, 2019

The Business Challenge

A well-established financial services institution in the United States was exposed to credit risk through their lending, trading, and capital market activities. For them, loans were the largest source of credit risk apart from financial instruments such as foreign exchange transactions, swaps, bonds, equities, interbank transactions, trade financing, and foreign exchange transactions. Moreover, their inability to track changes in economic or other circumstances was leading to deterioration in the credit standing of the institution’s counterparties. This compelled the client to collaborate with SpendEdge and enhance credit risk management strategies.

Establishing an appropriate credit risk environment is beneficial for companies to mitigate losses and sustain themselves in the market. Request a free proposal and access our complete portfolio of credit risk management solutions.

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Solutions Offered

The experts at SpendEdge analyzed the key challenges faced by procurement leaders from the financial sector. They delivered detailed procurement market intelligence solutions that were focused on providing the necessary insights to help them achieve procurement excellence beyond just cost savings. This improved their credit risk management and offered a complete understanding of the bank’s overall credit risk by viewing risk at the individual, customer and portfolio levels.

SpendEdge’s detailed insights into customers’ financial situation provided vital information that was required for credit risk management. They were also able to identify customers and adapt their credit management strategies, reducing bad debt considerably. The insights provided also enabled the client to identify customers who were over-indebted or were at risk of becoming over-indebted in the near future. SpendEdge’s credit risk management solutions further allowed the client to

  • Create an appropriate credit risk environment.
  • Improve the credit-granting process.
  • Establish an appropriate credit administration, measurement and monitoring process.
  • Ensure adequate controls over credit risk.
  • Increase bottom line returns.

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Key Findings

Incremental credit loss savings

SpendEdge helped the client increase revenue and minimize costs by formulating credit risk strategies, organizational structures, and credit risk management solutions.  The strategies implemented reduced the risk of late payments or defaults and extended the appropriate amount of credit to qualified buyers.

Loss mitigation

The credit risk management solutions helped the client to determine the financial position of their customers by analyzing their financial statements, performance, and flexibility in terms of the ability to raise capital. They devised metrics to determine if the lending is affordable for customers and ensured responsible lending.

Why is Credit Risk Management Important?

As credit-related assets produce almost 40% of total revenues for financial institutions, it becomes imperative for them to understand the adequacy of bank’s capital and loan loss reserves at any given time to mitigate losses. They require effective credit risk management to maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Also, credit risk management allows them to hold adequate capital against these risks to compensate for risks incurred. Some key steps for successful credit risk management are:

  • Accessing the right data and managing it.
  • Effective credit risk modelling.
  • Real-time analysis of risks.

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