Credit risk refers to the probability of loss due to a borrower's failure to make payments on any type of debt. Credit risk management is the practice of mitigating losses by understanding the adequacy of a bank's capital and loan loss reserves at any given time – a process that has long been a challenge for financial institutions.
Challenges to Successful Credit Risk Management:
inefficient data management: An inability to access the right data when it's needed causes problematic delays.
No groupwide risk modeling framework: Without it, banks can't generate complex, meaningful risk measures and get a big picture of groupwide risk.
Constant rework: Analysts can't change model parameters easily, which results in too much duplication of effort and negatively affects a bank's efficiency ratio.
Insufficient risk tools: Without a robust risk solution, banks can't identify portfolio concentrations or re-grade portfolios often enough to effectively manage risk.
Cumbersome reporting: Manual, spreadsheet-based reporting processes overburden analysts and IT.