Credit Risk
- Description
- Tasks
- Skills
- Useful Knowledge
- Entry Qualifications
- Professional Qualifications
- Trends
- Resources
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Financial companies have naturally taken a more cautious approach to issuing credit in recent years. But credit remains a vital part of re-stimulating the economy. Financial institutions must hold a set amount of capital in reserves, which relates to their risks. Assessing credit worthiness and the risks involved is an essential aspect of loaning money. There are four distinctive areas in credit risk.
Retail credit is where individuals approach banks or loan companies to borrow money. Due to volume, automated systems make most risk decisions. They tap into information held by credit reference agencies, like Experian and Equifax, for details about a consumer’s credit history.
Commercial credit is where small to medium sized firms borrow money. These are often firms which have a turn over under £250,000 per annum.
Wholesale and corporate lending is how companies borrow money. The sums involved can be large and loan agreements far more complex, sometimes taking the form of tradable bonds. Credit and underwriting analysts will research companies in detail, checking financial information, like annual accounts, and non-financial information, like future strategies and press releases, to build a picture about each company’s future stability. Analysts use this information to advise traders and those working in corporate finance on whether a company is ‘credit worthy’.
Trade credit is when companies take on credit risk with their customers and even make long-term loans. They face a similar issue to that faced by banks when lending to companies.
Salary
Entry level positions, such as a billings administrator, start at approximately £15,000 per annum. With the right experience, qualifications and skills you could progress to management roles and earn in excess of £50,000 per annum. This does not include potential bonuses and additional benefits. Salaries will vary considerably based on location and employer.
- Using appropriate tools and techniques and liaising with colleagues to review the request for credit, and sourcing other relevant information needed
- Identifying and reporting fraudulent applications
- Seeking references and confirming their validity and value
- Gathering information from credit agencies or analysing financial information, such as company accounts, balance sheets, assets, trading history and projected growth plans
- Credit scoring applications for loans, assessing the credit risk of potential and new customers
- Communicating and recording lending decisions to customers, often via branch or credit operational teams, and agreeing any credit limits
- Liaising with other finance-related teams, particularly contracts and credit control for retail clients, and trading and corporate finance teams for wholesale
- Producing weekly and monthly credit monitoring and financial analysis reports
- Developing models of financial patterns and systems to try and predict patterns and future trends
- Excellent interpersonal and communication skills
- Analytical and thorough, with good attention to detail
- Good planning and organisational skills
- Commercial and economic awareness
- Good numerical skills
- Confidence in handling potential conflict situations
- Highly motivated, with ability both to work alone and as part of a management team
- PC literate and highly numerate
- Diplomatic and persuasive
- Ability to manage and resolve complex disputes
A new entrant will not always be required to have this knowledge. Employers usually provide training to acquire skills for:
- Your organisation’s credit management policies and procedures for granting credit facilities
- Documentation that customers need to complete and supporting information required
- Applicable money laundering regulations
- Information that may be obtained from customers and third parties and its value, in risk assessment, to the credit practitioner
- Key agencies from where credit ratings are obtained
It is likely that before entering credit risk you will have gained relevant experience within the industry and will have a basic understanding of credit risk policies. Systems such as SPSS, SAS and SQL are widely used within consumer credit risk, as are Excel spreadsheets, so a working knowledge of one or some of these is an advantage.
Qualifications or practical experience in related professions such as accountancy, underwriting, risk management or banking can be helpful. Credit analysts and credit scorers, often the first role within a credit risk team, are required to have an understanding of numbers and the ability to communicate with clients in a written format, so qualifications in English and Maths are usually vital. Good IT skills are essential. Many candidates entering this profession have a degree in a numerate or statistical subject.
Qualifications that are most recognised in the credit management profession are offered by The Institute of Credit Management (ICM). Many senior credit risk jobs state a preference for ICM qualifications and membership. Credit analysts and scorers may start with:
- Level 2 or Level 3 Diploma in Credit Management, progressing to
- Level 5 Diploma in Credit Management
If working in retail and commercial banking, the ifs School of Finance Professional Certificate in Banking covers aspects of credit and risk, including modules in the Principles of Lending and Credit and Consumer Credit Risk Management.
In wholesale/investment credit risk, the following professional qualifications may be more applicable:
- CFA Society of the UK Investment Management Certificate (IMC)
- Chartered Institute for Securities & Investment (CISI) Level 3 Investments Operations Certificate
- Certified International Investment Analyst (CIIA) from the Association of Certified International Investment Analysts (ACIIA).
Being a niche field, with the right analysis and credit knowledge, individuals quickly become desirable to a wide range of employers globally. Given Financial Services Authority regulations and the implementation of new credit controls, there’s high demand and rewards to match for people that can step into specific project roles. This is likely to increase further for people with European regulatory knowledge to help manage the reorganisation of the EU financial system. All the major retail banks, building societies, corporate and investment banks, loan and finance companies employ credit risk teams. Opportunities also exist with large IFA/wealth management firms, insurers, hedge funds and consultancy firms. Commercial organisations across all industry sectors may also employ credit analysts and credit risk managers. Most investment and wholesale banking credit risk jobs are in London and Scotland. Retail credit risk opportunities exist nationwide within head offices and operational centres, but particularly around major financial centres. Corporate credit risk roles exist nationwide. With the infrastructure, technology and talent in place, more organisations are being drawn to Northern Ireland to establish their ‘back office’ operational business processing centres. This in turn is creating more credit departments and credit risk teams. Overseas posts may be available, particularly within an international organisation.
