Credit Risk: Is More Than Just Number Crunching: Modern Credit Management Means Getting Behind the Numbers and Assessing Factors Such as Quality of Management. Training of New Credit Risk Managers Should Also Reflect This Holistic Approach. (Training Supplement)
Credit risk management used to be more a case of crunching the numbers to assess the ability of an entity to repay its debt. Now, credit risk training is increasingly likely to emphasise qualitative aspects such as the strength of management, or the type of industry a company operates in.
Ken McLay, the managing director of risk solutions for Standard & Poor's, agrees there is a greater awareness today of the importance of these wider aspects.
"I think there's also a greater recognition that to fully understand credit risk it's not just about looking at the quantitative aspects of credit risk such as financial ratios, but also looking at qualitative aspects," he says.
"Delivering a qualitative aspect such as the strength of management, industry risk or the operating environment only comes from years of experience or from intensive training. So there's a lot more focus on the qualitative areas of credit risk than there has been in the past."
Omega Performance Group's vice president and senior relationship manager, Richard Nugent, believes interpreting financial data has become a more valuable exercise with the increasing use of financial spreadsheet software.
He says it's important to provide the banker with the tools to "get behind" the numbers being provided and processed by this software. Too often, he says, bank credit managers look at four years of financial data and ratios, but don't ask why the numbers are trending as they are.
"They don't say this trend has happened `because' -- and the word `because' is probably the most underused word in putting together a credit submission from a business banker," Mr Nugent says.
"And that's what it's all about, asking what has been the driver behind this trend or that trend in the financial data. This allows the banker to better identify and then to mitigate risk."
Mr Nugent says the qualifications of credit risk staff had not changed much in recent years, with many employers looking at people with backgrounds or education in finance, accounting and/or general business.
"We are seeing a trend toward hiring experienced lenders, rather than training neophytes from scratch," he says. …