Financial headlines this week are reporting credit risk management concerns from the Federal Reserve’s latest Shared National Credit (SNC) Program review. Several credit card issuers report increased charge-off rates, and there’s both optimism and apprehension amongst mid-sized banks after fourth-quarter earnings reviews.
Credit risk management is on a lot of lenders’ minds going into 2020, and it seems federal regulators think it ought to be. According to the Shared National Credit (SNC) Program report released on January 31, leveraged loans are at an all-time high. Lower interest rates and higher credit is causing increased exposure to risk. American Banker magazine reports some banks are watching carefully as major industries close operations, such as the Boeing plant in Washington state.
This precarious situation is leading to concern amongst senior loan officers who are seeing rising delinquency rates on sub-prime auto loans and credit cards, according to the Wall Street Journal. As a result, banks are planning to tighten their lending standards.
As we’ve talked about in previous posts, consumer debt continues to increase, hitting $4.15 trillion by the end of 2019. Payments Journal reports that revolving credit card debt is $1.08 trillion and predicts that figure to expand by another $100 billion by 2023.
Managing credit risk with AI
While the SNC acknowledges that most banks have credit risk management practices, its analysts are concerned about keeping up with evolving risk. The report notes that controls have not been tested in an economic downturn, perhaps leaving lenders at high degrees of risk.
“In response, most banks have adopted credit risk management practices to monitor and control this evolving risk. Some of these controls, however, have not been tested in an economic downturn,” the authors wrote.
Analysts are right to be concerned, especially if lenders are using manual or static technology to mitigate risk. Artificial intelligence that updates in real time and evolves with current trends and activities is the only reasonable solution. And, “it’s a great opportunity to impact your profitability but also to provide a better customer experience, to provide a richer experience to the customer,” notes Amyn Dhala, Vice President, Global Product Management, AI Express at Mastercard. One global lender, for example, reduced delinquencies by 20 percent once using Brighterion AI.
Yet the Federal Reserve imparts a sense of urgency about getting systems up and running without further delay. While some AI solutions can take months or years to implement, Amyn is proud to say Brighterion’s AI Express can deliver a personalized use case in just six to eight weeks. In an interview with PYMNTS CEO Karen Webster, Amyn talks about the process and our customers’ reactions to using Brighterion AI for credit risk management.
Learn more by watching the rest of Amyn’s interviews with Karen Webster.