Credit risk management solution of the year: Moody’s Analytics

Asia Risk Awards 2021

Paolo Persurich, Moody's Analytics

With the goal to improve the way its clients manage risk, stress-testing, credit loss allowance, portfolio management, risk reporting and regulatory compliance, Moody’s Analytics’ suite of credit risk solutions, including the CreditEdge platform and the RiskCalc tool, is helping to meet the industry’s needs and provide actionable solutions to businesses of all sizes and types. It also ensures the industry is up to date on environmental, social and governance (ESG) considerations and the implications of climate change on credit risk.

The CreditEdge platform is a highly accurate and consistent model that measures credit risk for more than 40,000 public entities across the world, in addition to being backed by a database of 11,700+ defaults over 50 years. The solution combines financial statement and market information into a predictive measurement of standalone credit risk.

The RiskCalc tool, on the other hand, provides next-generation default and recovery analytics for private firms. Paolo Persurich, senior director of product management at Moody’s Analytics, explains how “the RiskCalc solution is powered by Moody’s Analytics Data Alliance, one of the largest credit data consortia in the world. Through a variety of off-the-shelf or customisable scorecards, the solution combines quantitative assessment with qualitative factors that affect a firm’s overall credit risk”.

Moody’s Analytics credit solutions offer a complete data ecosystem that helps it go beyond just providing risk measures. They help to deliver actionable information and frameworks for fast and effective credit decisions. Persurich describes how “our credit models are built using the Data Alliance, the world’s largest consortia covering over 114 million commercial and industrial private firm financial statements, $588 billion in commercial real estate from more than 360 metropolitan statistical areas, more than 68% of all project finance loans originated since 1983, asset finance and agriculture”.

Along with the growing global considerations for ESG, Moody’s Analytics is working to expand and enhance its credit data offering through strategic investments in leading providers of ESG data, which it makes available to its clients through its platforms. The ESG data is also used to help develop new integrated risk assessment tools. Persurich notes that “additional tools include a climate-adjusted expected default frequency, screener toll to find risks and opportunities, AI-powered credit sentiment score and peer group analysis”.

Over the past 12 months, Moody’s Analytics has made some significant upgrades to its credit risk management solution. It launched the early-warning system in both the CreditEdge and the RiskCalc sites. This serves as an integrated portfolio-monitoring tool, bringing together various credit risk signals into a single platform. Clients can use the early-warning score produced to identify at-risk exposures in their commercial and industrial portfolios and take action before any losses occur. The new early-warning score was also introduced, providing a credit risk measure that can capture the probability of default, financial statement, macroeconomic and alternative data to users.

The past 12 months have also seen enhancements to the methodology for expected default frequency triggers, the launch of the credit sentiment score solution, new ‘smart’ news feeds delivered in real time, more integrated financial data, among other things.

In describing what its clients are looking for today, Persurich notes that the pace of change in the economy, markets and technology has fundamentally changed the way its customers do business: “They need fast and comprehensive credit analysis and opportunity scoring at their fingertips. They’ve asked for a risk assessment for potentially any company in the world, with intuitive and easy-to-understand metrics that take into account all possible sources.”

He adds that customers want metrics to cover market and financial data in addition to alternative data such as payment, news sentiment and ESG. The rollouts we’ve seen this year from Moody’s Analytics all work to enhance its credit risk solutions to encompass each of these demands.

Moody’s Analytics highlights how it was able to seamlessly pivot to remote work, for both itself and its clients as the pandemic unfolded in early 2020. It started a new ongoing research series, expected default frequency report for corporate firms, which details the impact of Covid-19 on credit measures and industry trends.

Adding to all of the work it has done over the past 12 months, Moody’s Analytics continues to push forward and invest in the future. Persurich explains that “we’re investing in the next generation of predictive analytics to help our customers be prepared for the ‘next normal’ and make better, faster, credit decisions”.

In 2022, a single platform will be used to access public and private exposures, scorecards and models, providing expanded coverage of 400 million public and private firms, says Persurich.