Brace for Disruption: UAE Credit Managers Must Adapt to New Regulatory Reality
UAE Credit Managers Must Adapt to New Regulatory Reality
Our latest white paper, "UAE Credit Strategies: Adapting to 2024’s Regulatory Shifts," doesn't just map out the changes; it scrutinises their potential impact on the credit landscape. The paper offers an in-depth analysis, underpinned by a critical look at how businesses can—and must—respond.
Brace for Disruption
The sands are shifting in the United Arab Emirates, and for credit professionals, the changes ahead are anything but subtle. With 2024 ushering in a significant tightening of the UAE’s AML/CFT (Anti-Money Laundering and Counter-Financing of Terrorism) regulations, the business environment is set for a shake-up that will reverberate through credit management and debt recovery practices.
Our latest white paper, “UAE Credit Strategies: Adapting to 2024’s Regulatory Shifts,” doesn’t just map out the changes; it scrutinises their potential impact on the credit landscape. The paper offers an in-depth analysis, underpinned by a critical look at how businesses can—and must—respond.
Regulatory Tightening: A Double-Edged Sword
Regulatory reforms are often touted as necessary evils—painful in the short term but beneficial in the long run. The UAE’s move to strengthen its AML/CFT framework, aligning more closely with global standards, is no exception. While the intent is clear—combatting financial crime—the execution will require businesses to overhaul their current credit and recovery strategies.
For credit managers, the challenge will be to navigate these changes without disrupting their operations. However, the reality is that many will face increased scrutiny and compliance burdens, forcing them to re-evaluate their risk management frameworks and operational procedures. The question isn’t just how to comply, but how to leverage these changes to gain a competitive edge.
CreditHub: UAE—A Strategic Resource
In the midst of this regulatory storm, CreditHub: UAE emerges as more than just a lifeline; it’s a strategic resource for those looking to stay ahead of the curve. This platform is designed to offer real-time intelligence, enforcement updates, and expert analysis, specifically tailored to the UAE’s evolving regulatory environment.
CreditHub: UAE isn’t about just ticking the compliance box. It’s about transforming regulatory challenges into opportunities for strategic advantage
The White Paper: Beyond Compliance
UAE Credit Strategies: Adapting to 2024’s Regulatory Shifts delves deep into what these regulatory changes mean for the credit industry. It provides
- Critical Analysis: Not just what the new regulations entail, but what they signify for the future of credit management in the UAE.
- Strategic Implications: How businesses can pivot their credit and debt recovery strategies to not just survive but thrive under the new regime.
- Industry Insight: Perspectives from leading experts on navigating regulatory changes and leveraging them for strategic growth.
The Imperative for Action
Waiting to see how the new regulations play out is not an option. The companies that will emerge unscathed—or even stronger—are those that act now. The full report, available on CreditHub: UAE, is an essential guide for any credit professional looking to understand the full implications of the 2024 regulatory shifts and prepare their strategies accordingly.
In a regulatory environment that is increasingly unforgiving, those who fail to adapt risk being left behind. The time to act is now.
Credit Contradiction: France’s Dynamic Stability
Credit Contradiction: France’s Dynamic Stability
As recent developments have shown, having access to accurate and timely data is essential for navigating these complexities. Our newly launched CreditHub: France is an invaluable resource that offers up-to-date insights to help professionals stay informed.
However, we have to look back to look forward, so to get a grip on what might happen next, let's consider history and see how France has managed its public debt and economic challenges over the years...
Introduction
Historical Insights and Modern Parallels
History has a way of repeating itself. Take the 1797 “bankruptcy of the two-thirds.” Faced with insurmountable debt, the French government defaulted on two-thirds of its obligations. This bold move, shocking at the time, ultimately provided a lifeline for the economy. Fast forward to post-World War II, and France uses inflation as a tool to erode the real value of its debt. These strategies—radical yet effective—illustrate France’s cultural willingness to take drastic measures in times of fiscal crisis.
In the present, since the onset of the COVID-19 pandemic, France’s debt-to-GDP ratio ballooned to 115%, far above the historical average of 95%. This figure is indeed high, even by OECD standards (but still lower than that of the U.S.A, in all fairness). The response has been a mix of bond issuance and debt restructuring discussions. This approach echoes the bold steps taken in 1797 and the post-war period, showing a consistent penchant for tackling debt head-on. The International Monetary Fund (IMF) and the European Commission have both noted France’s proactive stance in managing its elevated debt levels.
The cultural context and historical precedent suggest that bold measures, while risky, can provide necessary relief. For trade credit, the lesson is clear: anticipate volatility in the bond markets and prepare for fluctuations in borrowing costs.
Economic Stimulus
When it comes to economic stimulus, France has a playbook. Post-World War II, the government launched extensive public works and social programs to kickstart the economy. This era saw significant investments in infrastructure and public services, laying the foundation for long-term growth. In times of economic stagnation, aggressive public spending can be a game-changer in France.
In 2020, the country faced a similar challenge with the COVID-19 pandemic. The “France Relance” plan, a €100 billion stimulus package, aimed to revive the economy through investments in infrastructure, green energy, and digitalisation. This ambitious plan mirrors the post-war reconstruction efforts, emphasising the role of public spending in driving economic recovery. According to the European Commission, these measures are expected to significantly boost France’s economic growth in the coming years. Sectors likely to benefit from this surge in spending, such as construction, renewable energy, and tech, may start to look like good bets.
Monetary Policy
Monetary policy is another area where history provides valuable lessons. In the late 20th century, France frequently adjusted interest rates and coordinated with the European Central Bank (ECB) to manage inflation and stabilise the economy. These actions were crucial in maintaining economic stability during turbulent times.
Since 2020, the ECB and the Banque de France have implemented quantitative easing and kept interest rates low to support the pandemic-hit economy. These measures are designed to stimulate borrowing and investment, echoing the strategies of the past. The IMF has highlighted the importance of these policies in maintaining economic stability and supporting recovery.
Given rising government bond yields over the past few years, highlighting the increasing cost of servicing the national debt, credit professionals might start advising clients to lock in current low rates and prepare for tighter monetary policies.
A Consistent Priority
Social stability has always been the cornerstone of French policy however, especially during economic crises. The expansions of social welfare programs in the 1970s and 1980s are prime examples. These measures were crucial in mitigating the socio-economic impacts of economic downturns and maintaining social cohesion.
In response to the COVID-19 pandemic, the French government once again bolstered social welfare programs. These enhancements aimed to support vulnerable populations and prevent social unrest. The European Commission notes that these measures were vital in maintaining social stability during the pandemic.
Implications for Credit
France’s cultural attitude to significant debt levels, and its historic approach, as seen in instances like the 1797 “bankruptcy of the two-thirds” and post-World War II inflationary policies, demonstrates a pattern of robust governmental interventions in times of fiscal strain. These historical episodes provide a backdrop for understanding the current strategies employed by the French government, such as the “France Relance” plan.
Today, France’s economy is characterised by a high debt-to-GDP ratio, which, according to the IMF and European Commission, necessitates ongoing bond issuance and potential debt restructuring to manage fiscal pressures effectively. This scenario presents a dual challenge and opportunity for credit professionals. On one hand, there is the risk associated with high public debt levels and the potential for increased borrowing costs; on the other, there are opportunities linked to government spending that could stimulate business across a range of sectors.
The 2024 economic projections indicate a modest growth of 0.9% with an uptick expected in 2025, driven by easing financial conditions and a rebound in private consumption. These projections should guide us in anticipating market conditions. Specifically, the expected increase in private consumption and the government’s ongoing public investment suggest a potentially favourable environment for businesses in consumer-driven sectors and those involved in government projects.
Furthermore, the stabilisation of inflation at around 2.5% in 2024, with a decrease expected in 2025, provides a relatively stable backdrop for financial planning and credit management. However, anticipated slight increases in unemployment could pose challenges, highlighting the need for careful credit risk assessments in sectors that will be impacted by rising joblessness.
We should nonetheless temper this optimism with data from Altares, which shows an increase in business failures, indicating rising risks in the commercial environment. This trend suggests a deteriorating environment for business stability. Additionally, Informa indicate that average payment delays have increased significantly. These factors combined suggest a tightening credit environment and potentially higher risk of default, which credit professionals must navigate carefully.
A Contradictory Dynamism
In summary, the French economy dances to a rhythm of what we might term ‘Dynamic Stability’ — a concept that is as contradictory as it can be genius in its subtle orchestration of fiscal audacity with unwavering social commitment. This approach, deeply rooted in France’s rich historical fabric, allows it to pirouette through global economic pressures that would stagger less elegantly composed economies.
Dynamic Stability in France is not merely about balancing budgets or tweaking interest rates. It’s about how France uses its public debt not as a shackle but as a lever, pulling it at just the right moments to steer through economic storms. This is done with a flair that is distinctly French, embracing the debt as a tool of economic influence and sculpting it. The result is an economy that can bend without breaking, adapting to crises without succumbing to them.
However, this strategy brings its unique risks. France’s preference for leveraging public debt as an economic lever is a double-edged sword because whilst it allows for flexible responses to fiscal challenges, it also cultivates a level of uncertainty regarding long-term sustainability. High public debt levels lead to heightened scrutiny from international markets and credit rating agencies, potentially raising borrowing costs for the government and French businesses alike. For credit professionals, this translates into a heightened risk of volatility in credit conditions and interest rates, making the assessment of creditworthiness increasingly complex.
The significant government intervention in key economic sectors, whilst stabilising, also introduces bureaucratic complexities that can impede efficiency. This intervention often results in slower decision-making processes and can stifle innovation, particularly in sectors where the state maintains a heavy presence. For businesses reliant on government contracts or operating within these regulated frameworks, such inefficiencies can lead to delays in payment cycles and project completions, complicating trade credit arrangements and cash flow management.
Moreover, France’s integration within the Eurozone, whilst providing a buffer against some external economic shocks, also restricts its monetary autonomy. Bound by the monetary policies of the European Central Bank, France cannot tailor its interest rates or inflation measures solely based on national economic conditions as it did in times past. This limitation is particularly challenging during periods when France’s economic needs diverge from those of other Eurozone countries. For credit operations, this necessitates a deeper understanding of regional economic policies and their potential impacts.
Finally, the comprehensive nature of France’s social welfare system is a pillar of its economic stability but also requires substantial public funding. The high levels of taxation needed to support this system can strain both public finances and the profitability of businesses, influencing their ability to sustain growth and manage debt. For credit providers, this adds yet another layer of complexity, as they must consider the potential impact of such fiscal pressures on businesses’ operational capabilities and financial health.
Conclusion
Conclusion
Navigating France’s ‘Dynamic Stability’ thus requires a sophisticated approach. We must leverage the predictable elements of government support and consumer base resilience whilst remaining vigilant to the fluctuations in fiscal policy, bureaucratic (in)efficiency, and Eurozone constraints. Understanding these risks is not just about cautious navigation but about strategically positioning oneself to anticipate and respond to the ebbs and flows of France’s economic attitudes. This understanding is crucial for those engaged in the delicate balance of extending credit within such a dynamic framework.
In sum, the drama of France is not for the faint-hearted. It’s less bean-counting and more a grand performance where fiscal creativity meets social steadfastness, each act fraught with its own set of risks.
As we move forward, the drama of France’s economic landscape will continue to unfold with its characteristic flair. For those in the business of credit, we must embrace the complexity and harness the historical insights to stay agile in our approach. The stakes are high, the plot is intricate, and the rewards for those who master this environment in 2024 will be substantial.
As France navigates a new era in its ‘Dynamic Stability’, the complexity of its economic environment is only accelerating, offering a complex challenge for credit professionals to manage. Understanding and adapting to the fluctuations in fiscal policy, bureaucratic efficiency, and Eurozone constraints is essential.
To aid in this endeavour, we invite you to explore our newly launched CreditHub: France, which can be found on Baker Ing’s website. This dedicated resource provides up-to-date economic data, regulatory updates, and advanced financial charts, all tailored to help you navigate the intricacies of the French market with greater insight and foresight.
References
- European Commission. (2023). France: In-Depth Review.
- International Monetary Fund. (2023). France: 2023 Article IV Consultation.
- Lutfalla, M., Lenfant, J.-S., & Tiran, A. (2017). Une histoire de la dette publique en France. Classiques Garnier.
- Altares. (2024). Étude des défaillances et sauvegardes d’entreprises en France T2 2024.
- Informa. (2024). Pagos Europa T2 2024.
Olá! Introducing CreditHub: Portugal
Introducing CreditHub: Portugal
We are thrilled to announce the launch of our latest CreditHub – CreditHub: Portugal. This new addition joins our expanding suite of CreditHubs, which already includes the UK, Australia, Germany, and now Portugal. Designed specifically for credit professionals, CreditHub: Portugal is your one-stop resource for comprehensive financial insights and data tailored to the Portuguese market.
Comprehensive Briefing
Enforcement and Regulatory Information
Stay ahead of the curve with the latest regulatory updates and enforcement actions. Our platform ensures you have the necessary information to navigate Portugal’s complex regulatory environment, helping you manage compliance risks effectively.
Latest Country News
Keep informed with the latest business news and developments in Portugal. Our continuously updated news feed ensures you’re always aware of the latest trends and events that could impact your credit management strategies.
Economic Data
Access the most current and relevant economic indicators and data. Our meticulously curated economic data provides you with the insights needed to make informed credit decisions, understand market trends, and evaluate economic conditions.
Downloadable Resources
Explore a library of valuable documents and reports available for download. These resources are designed to support your credit analysis and decision-making processes, offering in-depth insights and practical information.
Advanced FX Charts
Our advanced FX charts, now available across all CreditHub platforms, including CreditHub: Portugal, provide detailed analysis and indicators. These charts are essential tools for understanding currency movements and trends, helping you manage foreign exchange risks and make strategic financial decisions.
Company Lookup (Beta)
We are excited to introduce the Company Lookup (Beta) feature across all our CreditHubs. This powerful tool allows credit professionals to:
- Search for Detailed Company Information: Gain deep insights into companies operating within Portugal.
- Access Key Financial Metrics: Evaluate a company’s financial health and creditworthiness with ease.
- View Company News and Developments: Stay updated on the latest company-specific news and events.
- Evaluate Financial Health: Make informed credit decisions based on comprehensive financial data.
Why CreditHub: Portugal?
CreditHub: Portugal is specifically designed to meet the needs of credit professionals. Whether you are assessing credit risks, managing collections, or making investment decisions, our platform provides you with the data and insights you need to succeed in the Portuguese market.
By leveraging the comprehensive resources available in CreditHub: Portugal, you can:
- Make informed credit decisions
- Identify and mitigate risks effectively
- Gain a competitive edge in the market
- Enhance your credit management strategies
Explore CreditHub: Portugal
We invite all credit professionals to explore the robust features and resources that CreditHub: Portugal offers. Discover how this powerful tool can support your credit management efforts and help you achieve your professional goals.
Click here to start your journey with CreditHub: Portugal: CreditHub: Portugal
Thank you for your continued support. We look forward to helping you navigate the Portuguese market with confidence and success.
The Unseen Power of Non-Financial Data
The Unseen Power of Non-Financial Data
Relying solely on traditional financial data for assessing credit risk is like using a sundial in the age of smartwatches. The action lies in harnessing non-financial data.
Inspired by expert insights from our groundbreaking webinar on the subject, we've augmented the speaker's insights with academic research and a couple of key clips from the webinar to provide you with the confidence/ammunition needed to champion the adoption of non-financial data in your organisation.
Introduction
The complexity and interconnectivity of global markets now demand a nuanced approach to credit risk. Traditional metrics like financial statements and past credit performance, while still relevant, often lag too far behind to effectively respond to rapid market shifts. Non-financial data steps into this breach, offering a dynamic and rich view of an entity’s risk profile.
Recent studies highlight the importance of integrating non-financial data with traditional financial metrics to improve credit risk assessment models. Together, these studies underscore the practical utility and enhanced accuracy achieved by integrating financial and non-financial data in credit risk models.
Baker Ing’s webinar on these matters served as a microcosm of expert opinion on this topic. Maria Anselmi emphasised the growing significance of ESG scores in evaluating long-term sustainability and ethical governance. Shaun Rees highlighted how real-time payment behaviours could be a window into financial health. And, Markus Kuger pointed out the value of alternative economic indicators, especially in times of uncertainty.
Non-financial data opens new vistas for credit risk assessment, marrying the old with the new to forge a path towards more informed and effective decision-making processes.
The Emerging Power of Non-Financial Data
The use of non-financial data in credit risk assessment is no longer a fringe idea; it’s rapidly becoming mainstream. This shift is underscored by research such as that conducted by Rasa Kanapickienė and her team, who developed an innovative enterprise trade credit risk assessment (ETCRA) model tailored for small and micro-enterprises in Lithuania. Their findings were striking: while models that rely solely on financial ratios are effective, incorporating non-financial variables significantly enhances their performance. This not only validates the importance of traditional financial data but also highlights the indispensable value of non-financial data in providing a more nuanced and comprehensive assessment.
anapickienė’s research sheds light on the limitations of traditional financial metrics like profitability, liquidity, solvency, and activity ratios. These metrics, while essential, often provide an incomplete picture. By weaving in non-financial data—such as payment behaviors and qualitative indicators—the assessment model can offer a richer, more detailed view of an enterprise’s financial health and risk profile. This holistic approach enables credit risk professionals to make more informed decisions, particularly for small and micro-enterprises, where financial data alone might not capture the full spectrum of creditworthiness.
In essence, integrating non-financial data broadens the scope of credit risk assessment, ensuring that it is not only more accurate but also more reflective of the complex realities businesses face today. This marks a significant step forward in the evolution of credit risk management, paving the way for more reliable and insightful evaluations.
ESG Metrics: The New Frontier
Environmental, Social, and Governance (ESG) metrics have moved to the forefront of non-financial data, offering crucial insights into a company’s long-term sustainability and ethical practices. The work of E. Altman and his colleagues underscores the transformative potential of these metrics. Their research demonstrates that incorporating qualitative non-financial information—such as legal actions, company filings, audit reports, and firm-specific characteristics—significantly boosts the predictive accuracy of credit risk models for small and medium-sized enterprises (SMEs).
Altman’s study revealed that companies with a history of legal issues or negative audit reports are more prone to default. This highlights the critical importance of such qualitative data in risk assessment. Additionally, firm-specific characteristics, like governance practices and board diversity, showed a strong correlation with creditworthiness. These findings underscore the substantial value of comprehensive ESG metrics in evaluating a company’s risk profile, providing deeper insights into factors that drive long-term sustainability and ethical governance.
Environmental Metrics: These evaluate a company’s impact on the planet, including carbon emissions, energy efficiency, and waste management. Companies excelling in environmental performance typically adopt sustainable practices, invest in renewable energy, and commit to reducing their carbon footprint. Such efforts not only benefit the environment but also bolster the company’s reputation and mitigate regulatory risks, making them more attractive to investors and lenders.
Social Metrics: These focus on a company’s relationships with its employees, customers, and communities. Factors like labor practices, diversity and inclusion, and community engagement are crucial indicators of social responsibility. High performance in these areas can lead to increased employee satisfaction and retention, as well as greater customer loyalty—all of which positively influence the company’s creditworthiness.
Governance Metrics: These assess the quality and effectiveness of a company’s leadership, including board diversity, executive compensation, and ethical business practices. Strong governance structures are indicative of sound decision-making and effective risk management, which are essential for long-term sustainability. Companies with robust governance practices are better equipped to handle crises and maintain investor confidence.
In essence, integrating ESG metrics into credit risk assessments allows for a more comprehensive evaluation of a company’s risk profile. It provides credit risk professionals with a clearer view of the factors that influence a company’s long-term sustainability and ethical standing, ultimately leading to more informed and reliable credit risk evaluations.
Real-Time Payment Behaviours: The Pulse of Financial Health
Payment behaviours are the heartbeat of a company’s financial health, providing real-time insights into how promptly debts are settled. This data is indispensable for uncovering underlying financial stability or distress. Sean Rees underscores the critical role of real-time payment behaviours in assessing credit risk. Access to such real-time data allows for continuous monitoring and timely adjustments to credit assessments, offering early warnings of potential financial instability.
Rees’s perspective is supported by the research of Roozmehr Safi and colleagues, who demonstrate that non-financial web data can predict the creditworthiness of businesses, especially when reliable financial data is scarce. This is particularly relevant for online businesses and SMEs, which might lack extensive financial histories but display valuable non-financial indicators of creditworthiness.
Safi’s study identified several non-financial factors from B2B exchanges that significantly influence credit risk, such as customer reviews, website traffic, and social media presence. These factors provide real-time insights into a company’s market position, customer satisfaction, and operational performance. By incorporating such non-financial data into credit risk models, lenders can gain a more accurate and timely understanding of a company’s financial health and potential risks.
Combining both internal payment data—like accounts payable and receivable records—with external payment experiences reported by suppliers and other creditors offers a comprehensive view of a company’s payment trends. This holistic approach enables credit risk professionals to identify patterns and deviations that may indicate financial health or distress, facilitating proactive risk management. For example, a sudden surge in late payments or requests for extended payment terms could signal liquidity issues, prompting a reevaluation of the company’s creditworthiness.
Integrating real-time payment behaviour data into credit risk models ensures that assessments are not only more accurate but also more reflective of the current financial realities faced by businesses. This dynamic approach to credit risk assessment allows for a more responsive and informed decision-making process, enhancing the ability to manage and mitigate potential risks effectively.
Integrating Non-Financial Data: A Strategic Approach
Integrating non-financial data into credit risk assessments requires a strategic approach. Companies need to establish robust data collection and analysis frameworks to leverage the full potential of these diverse data sources. Key steps include data integration and quality control, continuous monitoring and real-time updates, and collaborative data sharing.
By adopting these steps, amongst others, we can effectively integrate non-financial data into credit risk assessments, leading to more comprehensive and accurate evaluations. This approach not only improves the reliability of credit risk models but also provides deeper insights into the factors that influence creditworthiness, enabling more informed and proactive decision-making.
- Validation of Data Sources: Ensuring data integrity starts with validating the credibility and reliability of multiple data sources. Cross-referencing data points from various providers is essential to maintain consistency.
- Standardisation of Data Formats: Data often comes in various formats, which can be a hurdle for seamless integration and comparison. Standardising these formats into a common framework is necessary. Advanced analytics and machine learning algorithms, such as decision trees, can significantly enhance predictive accuracy when integrating diverse data sources. Khemakhem et al. highlighted that decision trees offer higher predictive accuracy for credit risk assessment than artificial neural networks, especially when the data is balanced. This makes them an invaluable tool in the data integration process.
- Advanced Analytics for Discrepancy Identification: Advanced analytics and machine learning algorithms play a crucial role in identifying and rectifying discrepancies within data. These technologies can detect anomalies and outliers, ensuring that only high-quality data is used in risk assessments. Employing such techniques enhances the reliability of integrated data and improves the overall accuracy of credit risk models.
The Imperative of Real-Time Monitoring
Given the dynamic nature of credit risk, continuous monitoring and real-time updates are essential for maintaining an accurate risk profile. This involves several key strategies:
Automated Tracking Systems: Implementing automated systems to continuously track changes in key indicators—such as payment behaviors, ESG scores, and alternative economic metrics—is crucial. These systems provide real-time alerts and updates, allowing credit risk professionals to respond swiftly to emerging risks. Laura Miliūnaitė et al.’s research supports the implementation of AI-driven systems for continuous monitoring and real-time updates. AI methods can efficiently process large volumes of non-financial data, providing timely insights and enabling dynamic, responsive credit risk management.
Proactive Risk Management: Real-time monitoring allows companies to proactively adjust their credit risk assessments. This might involve tightening credit terms for high-risk clients or extending more favorable terms to those demonstrating strong financial health. AI-driven systems can help identify these trends early, enabling proactive adjustments and mitigating potential risks before they escalate. This proactive approach ensures that credit risk assessments remain relevant and accurate, adapting to the latest available data.
Capitalising on Opportunities: Continuous monitoring also helps companies identify and capitalise on emerging opportunities. For instance, a sudden improvement in a client’s ESG score or payment behaviour might prompt a review of their credit terms, potentially leading to enhanced business relationships. AI systems facilitate this by providing real-time data analysis and identifying patterns that indicate positive changes in a client’s risk profile. This not only helps in mitigating risks but also in leveraging positive developments to foster stronger, more beneficial relationships with clients.
By integrating these methods, we can ensure that credit risk is not only accurate but also dynamic and responsive to changing financial circumstances.
Expanding Horizons: The Power of Collaborative Data Sharing
Expanding Horizons: The Power of Collaborative Data Sharing
Collaborative data sharing rounds out the strategy by further broadening the scope and depth of available information, providing a more comprehensive view of credit risk. Key aspects of this collaboration include:
Establishing Data-Sharing Agreements: Forming agreements with external partners—such as financial institutions, suppliers, and data providers—is vital for sharing relevant data. These agreements should clearly outline the terms and conditions of data sharing, ensuring compliance with privacy and confidentiality standards. Studies by E. Altman and colleagues advocate for collaborative approaches in data sharing to enhance credit risk models. They highlight the benefits of accessing a wider range of data sources, which can improve the accuracy and robustness of credit risk assessments.
Participating in Industry Consortia: Joining industry consortia, like Let’s Talk Credit Ltd and data-sharing networks can provide access to a broader range of data sources. These consortia often aggregate data from multiple participants, offering valuable insights and benchmarks that individual companies might not access independently. Collaborative data sharing through consortia leads to a more comprehensive understanding of industry trends and sector-specific risks, thereby enhancing the overall effectiveness of credit risk assessments.
Leveraging External Insights: Accessing data from external partners enhances the understanding of market trends and sector-specific risks. This collaborative approach enables companies to benchmark their performance against industry standards and gain insights into best practices. By leveraging external insights, companies can improve their credit risk models and make more informed decisions based on a wider array of data points.
Collaborative data sharing unlocks a wealth of information that individual companies can’t gather on their own. This expanded data pool enriches risk assessments, making them more accurate and comprehensive. It also fosters a culture of shared knowledge and continuous improvement, where companies can learn from each other and adapt to emerging trends and risks more effectively.
Conclusion
Conclusion
The integration of non-financial data into credit risk assessment represents a shift in how companies evaluate creditworthiness. By leveraging ESG scores, real-time payment behaviours, and alternative economic indicators, businesses can gain a more comprehensive and nuanced understanding of risk. This holistic approach not only improves the accuracy of credit assessments but also promotes sustainable and ethical business practices.
As the economic landscape continues to evolve, and quicken, the importance of non-financial data will only grow. Traditional financial metrics, while still valuable, are no longer sufficient on their own to provide a full picture of credit risk. The rapid pace of change in today’s global economy demands more immediate and detailed insights, which non-financial data can provide. Companies that proactively integrate these data sources into their risk management strategies will be better positioned to navigate uncertainty and drive long-term success.
For further information and detailed insights, readers are encouraged to connect with the experts – Shaun Rees and Markus Kuger – and access additional resources through Baker Ring’s Global Outlook section where the original slides can be found, as well as the full webinar on YouTube.
To support this paradigm shift, we’ve recently introduced CreditHubs. Designed to transform dense market data into clear, actionable insights, CreditHubs equips professionals with the tools they need to stay ahead. Offering free access, it ensures that credit professionals can seamlessly adapt to regulatory changes and economic shifts across markets. As we continue to expand CreditHubs, it will offer a wide range of regional and industry-specific hubs, providing a robust, go-to resource for trade credit insight. You can check out the first CreditHub here (sign-up for updates at the bottom of the page): http://bakering.global/credithub-australia/
References:
- Kanapickienė, R., et al. (2019). “Credit Risk Assessment Model for Small and Micro-Enterprises: The Case of Lithuania.”
- Safi, R., et al. (2014). “Using non-Financial Data to Assess the creditworthiness of Businesses in Online Trade.”
- Altman, E., et al. (2008). “The Value of Non-Financial Information in SME Risk Management.”
- Miliūnaitė, L., et al. (2023). “The Role of Artificial Intelligence, Financial and Non-Financial Data in Credit Risk Prediction: Literature Review.”
- Khemakhem, S., et al. (2018). “Predicting credit risk on the basis of financial and non-financial variables and data mining.”
- Baker Ing International (2022). “Executive Recap: Leveraging Non-Financial Data”. https://bakering.global/product/executive-recap-leveraging-non-financial-data/
- Baker Ing International (2022). “Webinar: Leveraging Non-Financial Data”. https://bakering.global/product/webinar-non-financial-data/
- Baker Ing International (2022). “Webinar: How Data is Changing Credit – The Impact of Non-Financial Data”. https://www.youtube.com/watch?v=um7KEVW0-tc
Risk Monitor Q1 2024
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Unseen Forces: Risk Monitor Q1 2024
When you peel back the layers of the global economy, what emerges isn’t just a series of data points, but a story about the evolving interplay between innovation, risk, and resilience. The latest Risk Monitor from Baker Ing provides a window into the pressures and potentials reshaping how we do business and manage credit.
The world is caught in a tide of transformation right now that’s deeper and more nuanced than the usual headlines about economic growth or downturns. What the Risk Monitor shows us is how this transformation is unfolding across multiple fronts:
- Innovation’s Double-Edged Sword: Innovation isn’t just driving growth; it’s reshaping entire industries. For instance, the push toward digital technology in sectors from healthcare to finance isn’t simply about adopting new tools; it’s about fundamentally rethinking business models. This movement is creating opportunities but also exposing companies to new types of risks. The transformation is as much about navigating these risks as it is about capturing the potential of new technologies.
- The New Geography of Risk: The report underscores a shift in how we understand and manage risks. It’s no longer just about internal controls or managing financial exposures; it’s about understanding how global dynamics, from supply chain disruptions to cybersecurity threats, are interconnected. The way companies respond to these risks doesn’t just determine their survival; it shapes how they’re positioned in a global market that’s less predictable than ever.
- Resilience as Strategic Imperative: Resilience emerges from the report as a critical theme, but not in the old sense of merely bouncing back from shocks. Instead, resilience is about building the capacity to thrive amid ongoing uncertainties. It’s about how businesses adapt their strategies to withstand not just single events, but ongoing waves of change. This approach to resilience is about foresight and flexibility, embedding adaptive capabilities into the core of business operations.
The Risk Monitor Q1 2024, with its comprehensive scope, offers quick fire insight across a range of industries; just what we need right now for navigating the complexities of our modern markets. The report helps decode the broader economic currents, but it also underscores the importance of strategic decision-making in leveraging these insights. It’s about turning data into actionable intelligence that can guide businesses toward sustainable growth and innovation.
What we take from this data is that we’re a world where the pace of change is accelerating, where innovation and risk are intertwined, and where resilience is more about agility than endurance. This is the new reality for businesses and credit managers alike — a reality where understanding the deeper dynamics of the market is not just useful but essential.
Delve into the full Q1 2024 Risk Monitor by Baker Ing. It’s time to look beyond the surface and see the trends that are shaping our economic future.
Revolutionising Receivables: Introducing Baker Ing's Complimentary Data Cleaning and Enhancement Service
Receivables are the cornerstone of your business. It's not just about numbers, but about the stories they tell and the outcomes they shape. That's why we're delighted to introduce our innovative Data Cleaning and Enhancement Service.
Developed in collaboration with a roster of leading global data providers, this service offers an instrument to empower your business; harnessing reliable, accurate, and enhanced data to drive decision-making and risk management.
We're offering this complimentary service because we believe in sharing the tools for success. But more importantly, we're offering it because we believe in our clients' businesses; in your story, and in your future as a credit professional.
This service will be rolled out to Platinum client accounts initially, ensuring it delivers the highest impact and effectiveness. But rest assured, this is just the first act. We are committed to delivering our services across the spectrum, helping businesses of all scales to thrive. Stay tuned.
Contact your account manager today, or reach out to Christina Onofrei right here on LinkedIn.
Your success is our success.
Find out more here: Credit Data Cleaning
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