The impact of emerging risk on credit portfolio management

Credit risk has surged in recent years, initially on the back of the Covid-19 pandemic and then Russia’s invasion of Ukraine, and now remains high due to today’s unpredictable economic environment. New risks, brought about by inflation, rising interest rates, high energy costs and supply chain disruption, are all contributing to a riskier credit environment, causing banks to revisit how they assess and manage credit risk.

Additionally, bank credit portfolio managers are increasingly finding that non-financial risks, such as cyber risk and climate risk, are falling under the remit of credit portfolio management (CPM). This will also be impacted by the upcoming Basel III Final Reforms, which will inevitably dictate changes to the ways banks construct their portfolios.

In this podcast, panellists discuss these risks, the challenges they throw up and the role of CPM in addressing them.

1. How much work is required by the CPM to address these new risks?

2. What, if any, parallels are there between today’s environment and the financial crisis that began in 2007–08, and what does that mean for credit modelling and CPM?

3. What new methods, tools and techniques are credit portfolio managers now using?

4. How are early-warning indicators incorporating cutting-edge technology such as artificial intelligence?

5. How is climate risk impacting the CPM function?

6. At what stage is Intesa San Paolo in terms of analysing climate risk from a credit perspective? Is it also assessed as an opportunity?

7. What developments do the panellists expect to see in CPM in the coming months?

8. How are the Basel III Final Reforms going to impact CPM?

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