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Credit Management in the Time of Quantitative Easing

The Fed’s tapering of the Quantitative Easing (QE) program, followed by the tightening of the ‘easy-money’ policy by other central banks around the world, would indicate that the financial crisis has been contained, if not over. The fear that there could be a significant contagion in the market has subsided. While, on the one hand, there are signs that banks have significantly improved their balance sheets and their core capital, on the other hand, it means that banks will not have as much easy liquidity as they did during the past few years. Banks are now faced with a new set of challenges -- more importantly, for their customers looking for credit.

When they had easy access to liquidity, banks were in a better position to lend money. But even during this period, central banks stated that banks were not lending enough to the market, especially the SME segment, and were using the QE money to shore up their books. With the tapering of this stimulus, we are likely to witness a general tightening of lending norms. However obliquely, this, in turn, fuels suspicions that global economic revival could be affected. To ease such fears, all around, we are likely to see greater central bank scrutiny of lending norms and tighter supervision of the loans portfolio of banks. For example, banks in Europe are being tasked with closely monitoring the risk to their portfolios due to the situation in Ukraine—both in terms of country exposure and customer segments dependent on Russian gas.

Banks, therefore, face the unique challenge of having to ensure that they make better use of available capital, even while cheap money is drying up. Moreover, in a bid to limit the risk of contagion spreading, central banks are also advocating frequent stress testing for multiple scenarios. Even Asian banks, which were remained relatively unscathed during the financial crisis, are having to think smartly about managing the capital available to them. After all, it’s a highly inter-connected financial world.  

In this rather complex credit landscape, banks are realizing that their credit systems need to be more integrated and their credit officers need to play a more advisory role. Most credit departments use inputs from other parts of the organization such as Sales, Product, Finance, etc. They then create their own systems or spreadsheets to manage the credit process. But banks are seeing that this prevents them from being nimble in a highly competitive market.

To compete and stay ahead of the field, banks need to invest in comprehensive, integrated, credit management systems, such as Oracle’s Credit Management solutions (Oracle FLEXCUBE Enterprise Limits and Collateral Management – ELCM and Oracle Financial Services Analytical Applications for Credit Risk – OFSAA-CR). Such a system demonstrably helps banks achieve a unified view of their credit process, right from the appetite setting stage through to sales cycles, credit origination, product utilization and exception management. This ensures everyone works off the same data, thus ensuring the enterprise sells deals that are more profitable, chases the right opportunities, services customers more efficiently and tracks exposures real-time.

The advantage of investing in a modern system, such as Oracle’s Credit Management solutions, is that it can work with a variety of existing systems. For example, if a bank already uses a credit management platform for lending, the system can handle the origination and integrate with the lending platform for both setting up limits as well as capturing utilizations. The value that the bank derives from deploying Oracle’s credit management solution is that the whole enterprise works off a ‘Single Source of Truth’. With its built in dashboards, alerts and workflow mechanism, the system also helps various stakeholders in the credit process avoid duplication of data at input and reconciliation. Most importantly, it provides a view of the bank’s overall credit position.

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