Automation in Credit Risk Monitoring

Published on August 30, 2024 by Vipul Gupta

Technological advancements have made past ways of transacting obsolete. Trends are changing constantly in the world of finance, and adapting to this changing environment is vital for both survival and growth. The pandemic was an eye-opener for the banking sector, which was lagging in terms of adopting new-age technologies. We have since witnessed a fintech revolution, with the financial sector spending more on technology.

Banks have increased use of artificial intelligence (AI), machine leaning (ML) and natural language processing (NLP) to reduce the number of mundane tasks and to create a unique customer experience. There is no single solution or technology that can resolve all issues, but banks have adopted a mix of capabilities such as digital payments, intelligent bots and data acquisition and processing tools. For example, Bank of America has introduced a Predictive Intelligence Analytics Machine (PRIAM) that suggests a suitable investor for a deal based on historical deal participation, equity offering details, trading and client touch-point information and market data. Banks have also partnered with external vendors that have assessed this need and developed platform-based solutions.

Banks are re-imagining their lending processes to drive optimisation, digitalisation and efficiencies and to improve front-office effectiveness while focusing on expenses. Typical tasks under the transformation lens include financial spreading, covenant monitoring, credit underwriting and document management to achieve efficiencies and reduce cost of the credit function.

However, banks face several challenges in credit underwriting automation such as highly complicated and inconsistent processes, significant variability in formats/nomenclature/adjustments in financial statements, legacy systems and significant manual overlay.

• Highly complicated and inconsistent processes and systems across departments

• Significant variability in formats/nomenclature/adjustments in financial statements

• Legacy and fragmented systems, with no collaboration

• Limited bandwidth in front-office teams and the time investment needed to train technology/AI/ML models

• Significant manual overlay to ensure that the quality of credit-risk governance is not compromised

• Increasing cost and regulatory requirements

Hence, banks are evaluating a next-generation sourcing model with strategic partners that can deliver benefits of digitalisation with high-quality credit-risk governance.

At Acuity Knowledge Partners (Acuity), we address this problem by leveraging our proprietary large language model-based tool – CreditPulse – which can be used to create summarised commentary for fact-based analysis. This tool has been created using our in-depth knowledge of the lending value chain and corresponding technology landscape.

CreditPulse leverages AI to help standardise, digitalise and streamline the credit writing and review process. CreditPulse also offers a range of features, including end-to-end portfolio management, early warning indicators for effective risk governance, a user-friendly interactive interface, configurable templates, credit repository and data-extraction capabilities. The platform provides 30% cost savings over a three-year period and enables significant productivity gain in the first year of implementation. Ultimately, it enables the credit-risk function to focus on insights-based analysis, reduce turnaround time and support growth in lending volumes.

To know more about CreditPulse or to request a demo, visit CreditPulse.

How Acuity Knowledge Partners can help

Our Business Excellence and Automation Tools (BEAT)-enabled solutions that combine automation technology with the experience of our subject-matter experts reduces turnaround time without compromising quality or accuracy. Our tech team constantly improves our automation capabilities using ML and natural language generation.

We are a leading provider of bespoke research, analytics and technology solutions to the financial services sector, including asset managers, corporate and investment banks, private equity and venture capital firms, hedge funds and consulting firms. Our global network of over 6,000 analysts and industry experts, combined with proprietary technology, supports more than 600 financial institutions and consulting companies to operate more efficiently, unlock their human capital and transform operations. Acuity Knowledge Partners is headquartered in London and operates from 10 locations worldwide.

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