Due to changing regulatory demands, greater transparency rules, accessibility, and competition, banks are feeling pressured to develop a new digital revolution according to the Global Association of Risk Professionals [1] (GARP) and SAS’s [2] newest risk technology study.
The study, which gathered information from 300 banking sector risk practitioners, revealed that Credit Risk Transformation (CRT) is one of the top priorities for banks in the race to give them a competitive edge.
According to GARP and SAS, other top priorities of banks include:
- Essential evolution. 79% of credit risk pros placed medium to high priority on CRT compared to other organizational transformations within banking.
- Top speed, top priority. More than half (55%) anticipate their institution will complete their transformations within two years – an accelerated pace the report describes as "…surprising for traditionally pragmatic and cautious banks when pursuing projects core to their business."
- Faster, smarter decisions. Almost three-quarters (72%) identified optimizing credit decisioning as their main CRT business objective.
"When it comes to accomplishing credit risk transformation, there seems to be an element of rebuilding the plane in flight," said Troy Haines, Senior Vice President and Head of Risk Research and Quantitative Solutions at SAS. "Risk practitioners know that digitalization requires a rich understanding of advanced analytics and how to integrate them into existing operations, but successful realization can take time. That traditionally ROI-focused banks are working to achieve credit risk transformation at breakneck speed as a vital business objective shows how critical credit risk measurement and active credit portfolio management are to financial institutions' survival."
According to the study, 52% of professionals predict a “Phygital” landscape for banking (or one with both real-life and virtual options for consumers). Yet-to-be developed analytics, machine learning, and automation will be paramount to the future of banking, providing data and lessons on which these new systems will run. The top three areas banks should address first were:
- Advanced analytics, including artificial intelligence and machine learning (48%).
- Automation and streamlining of processes (47%).
- Better customer data management (45%).
"It's clear that banks have made significant progress in their CRT efforts," said Christopher Donohue, Managing Director of the GARP Benchmarking Initiative. "However, we've found there is still much work to be done regarding the integration of AI and machine learning, the improvement of customer data management and the optimization of credit decision-making."
"Understanding and effectively applying advanced analytics is essential to banks realizing the full potential of credit risk transformations," said Zeynep Salman, Head of Risk Decisioning for EMEA at SAS. "As risk practitioners advance their organizational transformations, the technologies that present as stumbling blocks now will become building blocks to a faster, smarter and more accessible future for banks and consumers.”
A copy of the research report can be downloaded here. [3]