A Financial Institution deploys Analytical Services for Assessing Counterparty Credit Risk

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Case Study
6 Nov, 2023

Assessing counterparty credit risk has never been more important than in today’s volatile markets. Onboarding new lending business and monitoring the financial strength of existing customers can be challenging for financial institutions that often have thousands of borrowers and financial counterparties across different industries and countries ― especially if the counterparties do not have a rating from credit rating agencies.

About
- The credit risk division of this U.S.-based firm required support for assigning internal credit ratings and preparing credit assessment reports for new and active counterparties across three types of institutions ― broker-dealers, asset managers, and alternative investment funds ― and across more than 30 countries.
Challenge
- Members of the credit risk team were finding it difficult to make timely credit decisions since their loan portfolio was largely comprised of unrated entities spread across multiple countries. They needed a more efficient process for onboarding new business and monitoring existing counterparties.
Solution
- Analysts specialized in credit risk assessment of financial counterparties and alternative investment funds at S&P Global Market Intelligence (“Market Intelligence”) were engaged to provide third party credit opinion on credit quality of such counterparties including written credit risk reports , of which approximately 40% were for onboarding requests. The team of analysts deployed for this project:
  - Leveraged standardized Scorecards available on S&P Capital IQ Pro (a one-stop desktop solution for essential intelligence), supplemented with financial ratios for each industry to aid credit assessments.
  - Prepared credit memos that discussed key strengths and risks for each counterparty profile, summarized the stand-alone credit risk profile and provided a forward-looking outlook.
  - Conduct periodic surveillance on the underlying assets in the portfolio to capture key material events and their impact on the stand-alone credit profile, which include updating the Scorecards with the latest financial information at a mutually agreed frequency.
  The deliverables are exchanged through a secured ‘e-share’ platform to comply with data protection laws and maintain client confidentiality.
Outcome
- Approximately 850 Scorecards and credit reports have been delivered to date, covering three types of counterparties across multiple regions. The ongoing support has enabled members of the credit risk team to eliminate onboarding backlogs, focus on strategic decision making and improve their oversight to mitigate risk exposures in line with the institution’s risk appetite.

A Financial Institution deploys Analytical Services for Assessing Counterparty Credit Risk

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