Managing and monitoring credit risk after the COVID-19 pandemic

The unique features of the pandemic-triggered recession have led banks to move more quickly to build real-time data and analytics into their credit-decision engines.

The coronavirus pandemic is a humanitarian crisis that continues to affect lives and livelihoods around the world. It has forced regional and national economies to close for weeks and months at a time, causing hardship—sometimes of existential gravity—for many populations. As of late July 2020, more than 14 million cases have been confirmed worldwide; the virus has taken the lives of more than 600,000 people. There is much more epidemiological work to do, as the pandemic remains dangerously active.

Countermeasures taken to contain the virus and save lives stopped the economy from functioning. With lockdowns now being lifted and businesses restarting, lending institutions are faced with a new and unfamiliar environment, in which they must evaluate and monitor credit risk with limited visibility and access to reliable data. Early experience is revealing a path forward, as banks distinguish the varying impact the crisis is having on different sectors and subsectors of the economy, and direct more attention to the financials and business models of individual households and companies. Data and analytics capabilities are proving essential to the solution. Leading banks are accelerating digital transformation to enable real-time monitoring and effective mining of transaction data, while automating the feeding of results into decision making. New approaches are emerging quickly not only for underwriting and monitoring but also for customer assistance and loss mitigation (which will be the topic of a separate article).