'Banks should focus on improving credit strategies'
N. Madhavan July 9, 2013In the aftermath of the 2008 financial crisis, there was general consensus that the global financial system needed reform. When the Basel Committee on Banking Supervision (BCBS) published its regulatory recommendations in 2009, the impact was felt far and wide. Banks would be forced to change the way they had been doing business for decades, and the outlook was uncertain.
Many banks are employing a top-down approach to strategies that help offset the negative impact on profitability of the new regulatory environment. However, an alternative, bottom-up approach can be very effective at optimising risk-weighted assets (RWA). By focussing on improving and optimising their credit strategies, banks can achieve significant benefits in terms of value creation.
Business and regulatory drivers are a fact of life for banks. They must balance business and regulations at both strategic and operational level. At the operational level, these business drivers are translated into specific credit strategies. Organisations can accept or reject customers; apply pricing, limits, and other terms and conditions; and cut costs to meet their objectives. Optimising credit strategies means making the best decisions-adjusting factors such as acceptance criteria, collateral, pricing, limit setting and loan amount.
A well-designed decision optimisation framework can provide a road map to developing a sound credit strategy. Analytical models and tools can help organisations not only address compliance issues such as Basel III norms, but also transform those regulatory requirements into a competitive advantage.
Vikram Narayan, CEO & Country Manager, Experian
(As told to Business Today's N. Madhavan)