Credit risk management product of the year: S&P Global Market Intelligence

Asia Risk Technology Awards 2020

Edward McKeon, S&P Global Market Intelligence

S&P Global Market Intelligence (SPGMI) wins this year’s Asia Risk Award for credit risk management product of the year, recognising their credit risk solutions on offer to their clients and the ways in which their credit assessment scorecards are enabling enhanced risk analysis for their clients and more enhanced, transparent analysis frameworks.

SPGMI’s Credit Risk Solution of more than 100 default and loss assessment frameworks allows for credit assessment models to be fully leveraged with a client’s own proprietary data, when only the data analytics framework is needed.

In discussing SPGMI’s win for credit risk management product, one Asia Risk judge noted that “this is key as banks would still like to utilise their years of data collected and to supplement it with third-party data, such as SPGMI’s. Internal data is still key as many large banks are on a Foundation IRB approach for corporate portfolios, and internal data will always be needed”.

On the data front, SPGMI leverages broad financial data, market data, and non-financial data to calculate credit scores using their Credit Assessment Scorecards. These scorecards provide a framework to assess credit risk, especially for low-default portfolios that do not have the internal default data necessary to construct calibrated and validated statistical models. In looking at analytics outputs, SPGMI delivers credit risk indicators – including probability of default (PD), loss given default (LGD) – and credit scores for public and private companies.

A key area of focus for SPGMI is in the low-default portfolio segment. Constructing internal, statistical credit risk models can be quite tricky due to the lack of available data.

Edward McKeon, director, credit risk solutions APAC for SPGMI, explains how, in response to this lack of data, “our solution offers a rigorous methodology that uses expert judgement to complement financial analysis, which is different to what we see in statistical credit risk models. It helps identify and manage those potential default risks for counterparts across multiple sectors and asset classes.”

With ever-changing regulations and reporting standards, market participants need to adapt their credit risk management workflows. McKeon explains a key drive for SPGMI with their credit risk solution: “We try to focus on transparency, when it comes down to the analytical framework that is underpinning credit risk. Especially with the effect that Covid-19 is having on risk management practices, that ability for users to dive deep and understand the key strengths and weaknesses of their credit portfolios has become crucial for them to stay ahead of the trends we’re seeing globally related to credit exposures.”

The focus on the Asian markets in particular brings specific challenges, especially with low-default portfolios. In looking at the emerging markets space, SPGMI recognises certain challenges – lack of available data, reporting that lacks granularity, and so forth – which provide all the more reason to have an expert judgement approach to supplement traditional financial analysis.

McKeon notes that they’re seeing more Tier 1 and 2 institutions looking to enter new markets and do more cross-border business, and so they’re focused on helping their clients “enter new spaces/markets and successfully manage the risks associated with expanding into new territories or newer asset classes.” They understand the particular challenges that come with entering the emerging markets space and navigating regulations for their clients’ risk management.

SPGMI’s credit risk solution builds on the growing automation and digitisation in the industry that has been a key driver over the past year. As institutions push more towards digitisation, AI, and big data analytics, they can more readily integrate their solutions into their existing systems. In a case study provided, SPGMI demonstrated the situation of a commercial bank in Southeast Asia whose risk team was lacking in access to good internal default data. Working with the bank’s ongoing digitisation initiative, SPGMI was able to integrate their Credit Assessment Scorecards in the third-party system to support digitisation and big data analysis. 

SPGMI recognises ESG as one of the hottest topics in the market right now and for the foreseeable future. McKeon explains how, “we’ve seen, especially in Asia, that regulators are introducing these ‘sustainability-linked initiatives’, which promote the use of ESG-related criteria on decision-making processes.”

He further explains that “what we’re trying to do is support these institutions that want to factor in ESG within credit risk analysis. This will be done through our product solutions, through the Credit Assessment Scorecards, ultimately allowing clients to visualise the impact of ESG risk on various credit risk aspects as well as understand the materiality of ESG factors on the resulting credit score.”

An Asia Risk judge agreed that “ESG is something that every single organization is focusing on these days and this solution helps organisations as they future-proof themselves as they do business going forward.”