Credit risk

Gartner: New Credit Risk Management Criteria

An amazing attribute of Gartner’s business model is the opportunity to speak with so many financial services leaders about their top priorities. From these recent interactions, we detected that financial services executives are now rethinking an activity that is fundamental to their success and existence as a business: how to assess a customer’s creditworthiness.

Several developments have prompted industry leaders to rethink how credit risk is assessed:

  • Advances in credit automation – new technologies now allow financial providers to assess credit risk faster and smarter than ever before.

  • The COVID-19 pandemic – the pandemic has compromised traditional measures of credit risk such as earnings, balance sheets and investable assets and rendered them unsuitable for use.

  • Rising financial vulnerability – due to both the pandemic and other factors, an increasing number of customers are financially vulnerable, struggling to meet their basic financial needs. It’s not a new problem, but the pandemic has dramatically exacerbated the vulnerability of all customer segments and demographics.

For these and other reasons, credit risk models are fundamentally changing. Providers are adopting more holistic criteria to assess clients beyond financial factors. They complement these new models with AI and a more diverse set of decision makers to remove bias from credit decisions. And banks are also looking to provide more transparency to help customers understand how credit decisions are made and the steps available in the event of an unfavorable decision.

In conversations with our experts, financial services executives told us that they were exploring the following new criteria for assessing credit risk:

  • Social media content – ​​some banks are now rating customers based on their social media profiles. By reviewing customer profiles on platforms such as Linkedin and Facebook, banks can assess customer characteristics such as brand loyalty, trustworthiness, conscientiousness, work ethic, and relationships with friends and family. family.

  • Quality of management – ​​when evaluating business customers, some companies now assess the quality of the company’s management team. This approach has played a key role during COVID-19 by allowing providers to assess a leadership team’s ability to weather the crisis. For example, the management teams that led their companies through the 2008 financial crisis gained experience that could potentially help their companies through the pandemic.

  • Operational data – banks can now look at a wide range of business operating indicators to understand credit risk. A bank Gartner works with reviews government records, utility data, regulatory filings, and satellite imagery data to better understand business customers. The data often helps the company lend to customers who lack typical documentation and who might have been shut out of the banking system under normal risk models.

  • Customer health self-assessment – ​​during the pandemic, some companies have rolled out customer surveys to understand how customers have weathered the crisis. Consumers could offer perspective on the stability of their family’s finances, while business owners could provide insight into the steps their businesses have taken to adapt to COVID-19. Although this information requires control and verification, it can speed up the prospecting of new customers.

  • Investment behavior – in the area of ​​wealth management, some firms are exploring the use of AI to assess clients’ past investment behavior as an indicator of future risk. For example, companies can examine how customers reacted to previous market swings and which customers made big moves versus those who stayed the course. For high net worth individuals seeking a credit relationship with their supplier, investment behavior can help suppliers assess these opportunities.

Of course, legacy financial factors continue to figure prominently in credit risk models and likely will for the foreseeable future. But these new metrics allow companies to assess customers more holistically and engage customers who historically might have been rejected.

For more information, see our case studies on how banks are reinventing credit risk criteria and the relationship between business and risk management. Review our research on how automation is fundamentally transforming the credit journey. And learn more about how financial providers are stepping up to support financially vulnerable customers. We encourage you to schedule a survey with our experts to discuss your approach and seek our support in this and other areas.


Gartner Inc. published this content on March 28, 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unmodified, on March 28, 2022 03:30:08 UTC.

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Analyst Recommendations on GARTNER, INC.

2022 sales 5,259 million

2022 net income 504M

Net debt 2022 1,202 million

PER 2022 ratio 48.6x
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Capitalization 24,309M
EV / Sales 2022 4.85x
EV / Sales 2023 4.20x
# of employees 16,600
Floating 48.8%

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