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The value of credit risk management

How building risk capabilities can improve revenue and profitability

Today, too many banks feel the need to substantially improve insight into the risks across their business. Why? Because they rely on disparate processes and systems. Without comprehensive data and process integration, risks and potential mitigating circumstances go unrecognized.

A new executive brief from the IBM Center for Applied Insights reveals a set of risk management competencies that financial firms can build in order to improve decision-making and enhance risk appetite management and business performance. The brief also demonstrates a model that quantifies the economic impact of smarter risk management.

Start with data reliability. With a data platform in place, firms can integrate data into a single, aggregated view for managing risk and performance. Bankers who have invested in data integration tell us that this turns risk control into competitive advantage―and profitability.

Equally important is the integration of business process. Too many financial services firms say their governance, risk and compliance processes are still not integrated across their enterprise. Our findings show that firms realize significant financial benefits by reengineering business processes and governance to effectively apply intelligence to enhance credit risk performance.

Smarter credit risk management: a competency map
Fully realized smarter risk management is based on a robust common data platform, coupled with extended, complementary capabilities that multiply the value of information and insight. It's a journey of increasing sophistication and maturity over time.

Chart: Value x Progress over time

Smarter credit risk management is all about harnessing data and continually feeding management information systems with forward-looking views of the business. It delivers value through allocating capital and resources more effectively to reflect an integrated and dynamic balance of risk.

Smarter risk with strategic investments

In the executive brief , The value of smarter credit risk management: Beyond compliance—An opportunity to improve revenues and profitability with smarter banking, you'll learn how investing in technologies to instrument, interconnect and extract intelligence from data will return significant economic benefits. Those benefits include:

Using an illustrative organization, we demonstrate a model that quantifies the economic impact of smarter credit risk management. For example, we found that for an illustrative bank investments in smarter risk management would yield annual benefits of $483 million translating into a profit increase of 14%. Using our model, we can demonstrate the benefit to your company based on your own data.

Bankers are being pressured to transform in order to thrive in these uncertain times. An important part of this transformation is to align and enhance compatibility between risk appetite and business and financial performance―what we have termed Smarter Risk Management. And it makes good business sense too.