Are early warning systems (EWS) to assess credit risks critical to maximise corporate bank returns and shareholder value? Certainly yes! but how many follow them?
Evolving external forces are creating many risks for corporate banks globally. Corporate banks are now witnessing the end of an era. Following the 2008 financial crisis, banks rebuilt capital and invested in technology to strengthen their relationships with clients through improved efficiencies.
Macro factors like inflationary pressures, pandemics, frequent climate change-related events, and heightened geopolitical risk have the potential to disrupt supply chains across industries and impact businesses in unexpected ways.
The banking industry now faces a new era that will challenge banks’ ability to future-proof their risks and exposures without having any historical evidence or data on how to predict or tackle the risk. Banks can no longer depend on their current EWS using backward-looking indicators with high false positives, to protect them from future risks. Previous methods and data sources for assessing credit risk or identifying distress signals are quickly becoming out of date.
Banks have a limited window of…
