From one extreme to another: Covid upsets loan models once more

Unusual economic slumps tripped up models in 2020. Now, they are struggling with fast recoveries

Image: Risk.net montage

Twenty-twenty was not a great year for credit models, and this year isn’t looking good either.

When the Covid-19 pandemic shut down businesses and erased millions of jobs almost overnight, credit models went into overdrive, leading banks to overprovision for loan losses. Now, as some major economies bounce back, the same models are spewing out numbers that lenders judge too low. In response, banks are manually adjusting the outputs and making tweaks to the models themselves, to keep back more