Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics

 
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Moody’s Analytics Webinar: New Generation
of Credit Decisioning
Next Generation Capability

                                    22 May 2018
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Agenda

Nelson Almeida – CreditLens™
Jamie Stark – Alternative Data in Credit
Scoring and Decisioning

                                           2
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Pain Points Cited by Banks in Lending
                         Front-office                       Middle-office                                       Back-office

                                                        Credit Decisioning                                               Monitoring &
  Loan     Information                                                       Documentation &      Servicing &
                                   Credit Assessment    and Loan                                                         Portfolio
Process    Gathering                                                         Booking              Collections
                                                        Structuring                                                      Management

          • Manual data        • Manual and            • Lack of          • Inability to store   • Inability to         • Lack of early
            entry: duplication   excel-based             automated credit   and archive            automatically          warning signs for
            of data entry and    calculations for        approval process   documents              generate letters       covenant
            errors               spreading,                                                        and notifications      breaches and
                                 scoring or pricing    • Inability to     • Inability to track     to customers           defaults
          • Inability to auto-                           accurately assess and produce
            import financial   • Lack of a scoring       exposures          documents for                               • Lack of a risk and
            data directly from   model that                                 legal and                                     reporting
            3rd party sources    reflects the          • Lack of pricing    compliance                                    dashboard
                                                         model              purposes
                                 business factors
          • Lack of sufficient
            data on            • Lack of dual risk-    • Manual data entry
            borrowers/low        ratings                 of information in
            quality data                                 credit
                               • Inability to            presentation
          • Slow availability    benchmark               template
            of borrower data     against industry
                                 peers

                                  • Lack of an automated business rules engine with integrated workflow functionality

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Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
The Challenges with Legacy Systems
and Processes
   Characteristic                       Impact                   Bottom Line

        Manual and Paper
        Based Processes

      Limited Coordination of     Slow “Time to Decision” and
             Resources                   “Time to Cash”

        Inconsistent Credit
                                                                Competitive Disadvantage
      Underw riting Processes
                                   No Single and Consistent
                                       Source of Truth
       Duplicate Data Entry

                                                                 Inability to Respond to
          Aging Systems                                         Regulatory Requirements
           Architecture                                          Timely and Accurately
                                      Poor Data Integrity

      Lack of Integration w ith
           Risk Appetite

                                     Sub-Optimal Risk and           Unintended Risk
       Disparate Sources of
                                   Performance Assessment            Concentrations
             Risk Data

        Delayed Covenant
             Tracking
                                  Rear View Mirror Approach
        Incomplete Portfolio
       Management Reports

                                                                                           4
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Credit Decisoning

                    5
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
The Future of Business Lending

                         Information                                     Credit                                Credit Presentation
                          Gathering                                   Assessment                               & Loan Structuring
        Customer information is auto-populated         Credit model and analysis requirements         Where appropriate, credit presentation
         from external data sources                      are automatically selected by borrower          template is automatically selected
                                                         profile and needs
        Pre-screening and peer benchmarking                                                            Financial information, third party
         information is instantly available             Most credit decisions are automated, with       reports, and other details are
                                                         option for manual review                        automatically populated in the credit
        Tasks and timelines are assigned
         automatically                                  Spreads, where needed, are automated            presentation

                                                                                                        Pricing is recommended based on factors
                                                                                                         chosen by the lender
                                         Data collection is automated, streamlined, and consistently applied
                                            Workflow updates automatically based on completed tasks
                                            Notifications are provided when tasks are due and past due
                                             Time-in-process is tracked and analyzed to drive efficiency

          Data is centralized and accessible for         Customer credit quality and scores are       Streamlined approval ,focus on outliers
           business intelligence reporting                 tracked electronically based on data
                                                           feeds                                        Required documentation is captured
          Personalized dashboards enable real-                                                          electronically in the process
           time tracking of risk, portfolio, process      Customers receive automatic
           metrics                                         notifications when items are due             A loan is packaged and sent electronically to
                                                                                                         the customer for e-signature
          Peer and industry data feeds to                Credits for review are identified based
           dashboards for benchmarking                     on score or behavior change triggers         Signed documentation is stored and
                                                                                                         archived
                Monitoring & Portfolio                                    Serv icing                              Decisioning &
                   Management                                           & Collections                             Documentation

                                                                                                                                                         6
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
2   Meeting the Challenge
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
The CreditLens™ Vision
                       Customer               Credit             Credit
                      Management             Analysis         Presentation

Customer Engagement                                                          Credit Risk Solutions

                      Portfolio Risk         Covenants/        Decisioning
                      Management             Monitoring        & Approvals

                                  • A frictionless environment
                                   • Consistent control of risk
                          • Seamless automation & integration
                                  • Leverage new technology

                                                                                                     8
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Example: Illustrated Financial Spreading
  Savings*

         80%                                               7,500                                                    225k-
         Time Reduction                                       Hours saved p.a.
                                                                                                                    375k
                                                                                                                  Equivalent cost saving

*Based on 50 w eeks, 25 RM’s each taking 2.5 hours to re-enter 5 years of financial statements in support of c3 review s per w eek. Costs based on $30-50 per hour.
Time per case drops from 2.5 hrs to 0.5 hrs.

                                                                                                                                                                      9
Moody's Analytics Webinar: New Generation of Credit Decisioning - Next Generation Capability - Moody's Analytics
Golden Source of Risk Data
Maintain a single, auditable golden source repository of credit and risk-
related data with workflow enablement to apply simple business rules,
such as automated rating model selection and mandatory data capture

                                                                            10
With Deeper Insight and Control of the
Entire Relationship
Entity Management
» Dedicated entity management
  module provides core building
  block
» Construct relationship
  structures pivotal to accurate
  risk assessment
» Tune and validate data capture
  in accordance with entity type
  – improving data strength and
  quality
» Control and distribute risk
  grades within a relationship
           Provides a consistent and complete view for risk assessment

                                                                         11
Analytics
Powerful financial analysis and risk grading developed over
30 years
» Probability of Default and Loss Given
  Default measures
» Industry standard and custom ratio analysis
» Multiple accounting templates available to
  support regional and industry specific
  accounting standards
» Integration with our +35 industry and
  regional specific market leading RiskCalc
  models, which leverage the largest global
  database of private company financial
  information
» Integration with internal, regulator approved
  models, or statistical platforms such as ‘R’.

                                                              12
Deal Structuring Screens
                           Facilities

                           Collateral

                           Guarantees

                                        13
Flexible Routing Patterns – to meet
most business needs
Resolve scenarios of different complexity
» Highly predictable and repeatable
  business scenarios                                                                   CreditLen’s
                                                                                         Scope

  – Relatively small scale customer                                                                                         Hybrid

  – Limited number of business departments

                                             More Flexible and Automation
                                                                            Business
  – Repeatable business activities                                          Process

                                                                                                         Collaborative

» Unpredictable and unrepeatable
  business scenarios
  – Large scale customer                                                               Sequential

  – A number of business departments
  – Complex business activities without a
                                                                                                     Business Complexity
                                                                                       SME                                 Corporate
                                                                                                        More Complex
    standardized pattern

» Hybrid business scenarios

                                                                                                                                       14
Credit Presentation and Memo
Capturing the data and presenting in the Bank’s format

   Credit Presentation & Credit Memo

                                Credit Presentation Module

                                         Credit Memo (Output)
    Credit
 Presentation
                                            Credit Memo Configuration

                             Credit Presentation Configuration

                                                                        15
Credit Presentation and Memo
Consolidate and inform

                               16
CreditLens Covenants Meets the Markets
    Needs
     » Automate compliance checking
     » Monitor early-warning indicators
     » Improve credit origination practices

   MARQ
   Portal

CreditLens      Integrated
Business           Data
Modules           Source

       BvD

                                              17
Covenants Overview

                     18
Tracking & Testing
An overall view of statuses of all active covenants

                                                      19
Business Insights
Visualize data with integrated and intuitive dashboards for
different users from credit analysts to executive management
and auditors, providing business intelligence across your
team and the entire organization

                                                          20
Deployment Options
Three approaches:

On Premise
» CreditLens is installed on
  client site, as RiskAnalyst is
  currently

Private Cloud
» CreditLens is hosted by
  Moody’s infrastructure

Public Cloud
» CreditLens is hosted on a 3rd
  party site
» E.g. Amazon AWS
» Datacenter in EU and or UK

                                   21
Model Authoring Platform
CreditLens Model Authoring Platform (MAP)

                                            CreditLens
                                             PD/LGD
                                             Ratings

      Model Inputs     Model Outputs

                                       R Server

                                                    23
CreditLens Reduces Cost of Ownership

                                                              Powerful                                             Open
Cloud Deployment           Modular Licensing                                          Efficient Upgrades
                                                            Configuration                                       Architecture

   SaaS, Private and        Modular not Monolithic           Configuration not          Frictionless Standard   Data Automation &
Commercial Cloud options                                      Customization              Product Upgrades           Integration

                                       CreditLens architecture puts the customer back in control

                                                                                                                                    24
Benefits to Risk Management

Regulatory Compliance                      Business Insight
Enforce high standards of                   Sharper, focused and
compliance in data governance,         comprehensive data reports
credit assessment and risk                driving better business
management                                decisions and allow ing
                                      concentration on pro-active
                                           risk assessment and
                                                     monitoring.
Process Efficiency                        Operational Risk
Increased collaboration, cleaner
                                     Eliminate manual process and
data, improved communication and
                                         financial statement re-entry
automated tools reduce the ‘time
                                           and duplication reducing
to decision’ and increase
                                    manual effort and increasing
productivity
                                              the accuracy of data.

Consistency & Control                Provisions & Losses
Consistent capture of financials,      Increasing understanding of
approvals and overrides underpin     credit risk and early detection
system integrity and helps               of w arning signals through
simplify oversight and internal      enhanced monitoring. Reduce
policy adherence.                     probability of losses via more
                                            robust risk management

                                                                        25
Benefitting the Bottom Line

Revenue & Growth                                       Technology/Cyber
Generate additional capacity to w rite               Trust your critical business
more loans by reducing processing                operations to advanced, reliable
time and increasing collaboration                       and proven technological
amongst the deal team                                        architecture and IT .

Profit                                                                  Culture
Better data governance,                               Transition to a more modern
accurate risk assessment and                   business environment utilizing the
increased transparency equals                  latest technology. Enables further
higher quality loans and                     positive cultural advancement in the
improved pricing for risk                                              origanization

                                                                  Credit Risk
Customer Satisfaction                                 A modern w ay to originate,
Few er information requests, faster                   assess and manage credit
turnaround times and increased quality                     leading to better risk
time w ith Relationship Managers. Interact          management and compliance.
digitally at a client convenient time

                                                                                       26
3   Looking Forward
Moody’s Analytics Spreading Solution
A comprehensive set of data, tools and services

BvD Orbis                               Tax Reader            ML Spreading          MAKS
  Financials for      Data extraction    Automated data          Automated       Dedicated teams
public and private   from customers’    extraction from tax   spreading of PDF    of spreading
   companies          general ledger          forms              documents          analysts

                                                                                                   28
Bureau van Dijk

                  29
Gather loan application data digitally and automate spreading.

     MARQ™ online loan                   MARQ™ portal             CreditLens™ / Lending Cloud
          application            Secure relationship management   Automated spreading & scoring
 Instantaneous account linking

        Online & Desktop

         BORROWER tools              BORROWER-LENDER interface              LENDER tools

                                                                                            30
Spreading Automation

                       31
Moody’s Analytics Spreading Solution
A comprehensive set of data, tools and services

BvD Orbis                               Tax Reader            ML spreading          MAKS
  Financials for      Data extraction    Automated data          Automated       Dedicated teams
public and private   from customers’    extraction from tax   spreading of PDF    of spreading
   companies          general ledger          forms              documents          analysts

                                                                                                   32
4   Alternative Data in
    Credit Scoring
Motivation
Role of Alternative Data in Credit Scoring and Decisioning

                                                             34
Introduction
Understand credit relevance embedded in text

          Text based      Credit relevance           Credit relevance
          information         model                       score

   Company Research        Early Warning Indicator        Improve Models

Highlight relevant news   Scan feeds to detect       Improve traditional credit
and reviews               increased risk             risk models

                                                                                  35
Method
Train model on historic text sources
                           Credit relevance
                               model

                                          World leading Credit Risk
      Cutting edge AI research
                                          expertise, historic data and
                                          models

       Text Mining & Machine              Large collection of machine
       Learning techniques                readable text

                                                                    36
Disclaimer

             37
5   News
41
42
43
6   Social Media
45
46
Improve Default Prediction
Preliminary research yields promising results

                 52%                           60%
                Performance*                 Performance of
                 of RiskCalc                    RiskCalc
                                                   +
                                                Sentiment
                                             Scoring Model
* Accuracy ratio calculated on matched sample of firms with both Social Media
 Reviews and RiskCalc EDFs containing 6588 observations with 41 defaults.

                                                                                47
7   What’s next?
8   And Finally
Introducing the Data Alliance
Share Data, Gain Insight, Take Action

           https://dataalliance.moodysanalytics.com/

A collaborative effort providing high quality credit risk insights
for portfolio-level benchmarking and data augmentation

      Commercial & Industrial            Project Finance

      Commercial Real Estate             Asset Finance

                                                                51
Nelson Almeida              Jamie Stark
Nelson.Almeida@moodys.com   Jamie.Stark@moodys.com

                                           moodysanalytics.com
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