Fico:Develop Greater Understanding Of How Changes In Economy Will Impact Consumer Credit Risk

SINGAPORE, Dec 12 (Bernama) -- FICO, the leading provider of analytics and decision management technology, today called for local banking institutions to develop a greater understanding of how changes in the economy will impact consumers’ credit risk. President of FICO Asia Pacific, Dan McConaghy said building economic information into risk models is imperative for banks to execute effective risk management strategies, and protect the stability of the banking system. "This year taught us one thing, that volatility and change are constant. Stability is needed for recovery, and banks need infrastructures in place that enable them to understand market changes quickly, so they can react to these and even predict upcoming events. "Banks should leverage this economic risk modeling to track how stresses in the economy affect consumers’ ability to repay their debts, and enable banks to shore up capital in stressed portfolios," he said at a media briefing to share the key takeaways from the annual FICO APAC Chief Risk Officer Forum which concluded over the weekend. This sentiment of frequent and more comprehensive economic risk modeling was echoed at the Forum, a gathering of more than 30 chief risk officers from retail banks around the Asia Pacific region. Findings and discussions from this closed-door meeting highlighted the increasing role of risk officers in improving chances for growth in the economy. FICO chief analytics officer Dr Andrew Jennings said there is no greater time to highlight the importance of risk management than now, given jitters within the market and the interconnectedness of global banking systems. He said financial regulation by itself is only one step toward putting the economy back on track. In addition, he added, industry leaders need to strengthen systems that enable them to track macroeconomic changes and react to it quickly. Concurring with opinions of risk officers at the Forum was Cyrus Daruwala, managing director, Asia Pacific, IDC Financial Insights. He said incorporating predictive analytics in the customer origination and management process is going to be critical for banks in the region. "While banks are still focusing on customer acquisition and growing market share, they’re now increasingly interested in FICO’s approaches to identify prime customers that will prove to be more profitable," he added. While East Asia is set to grow in 2012, broader market uncertainty is clouding the rate of growth for the region as a whole. The Asian Development Bank (ADB) has predicted that emerging East Asia is slated to expand 7.2 percent in 2012, but this is lower than its previous forecast of 7.5 percent – the rate at which it is expected to grow in 2011. The ADB also examined three scenarios with correlating forecasts. First, the eurozone falls into recession, second, the eurozone and the US economies contract and third, a new global crisis occurs, with the eurozone and US output dropping to 2009 levels. In the third and worst scenario, emerging East Asia would each lose between 0.6 to 3.7 percentage points of Gross Domestic Product (GDP) growth. "Such variation could produce even larger variations in the credit performance of consumers, and as a result, affect retail banking profitability," said Jennings. He said banks need to improve their understanding of the interplay of risk and the economy, to identify some of the unknowns and turn them into manageable risks. -- BERNAMA