Eleanore Sykes Credit Risk Analytics, Credit Risk & Analytics, MERJE...
The responsibilities of a Head of Credit Risk are both complex and constantly evolving. Professionals in this role must have the ability to forecast, analyse and problem solve in order to protect their organisation from credit losses.
A Head of Credit Risk’s day-to-day duties include keeping abreast of ever changing legislation, taking ownership of the structure of various credit risk assessment functions, carrying out credit risk reporting and setting limits for scenario analysis and stress testing.
These skilled professionals are ultimately responsible for observing global scenarios and forming an assessment around the impact on credit risk in the long-term.
This is particularly fraught with uncertainty in the current climate and requires an individual who possesses an analytical mind and good foresight to successfully steer business though these hard times.
A good Head of Credit Risk is essential to help an organisation maintain stability and go on to flourish and grow, regardless of the scenario or circumstance which they find themselves facing.
Here, we asked a selection of well-respected industry professionals to let us know what they believe are the key traits required to fulfil a Head of Credit Risk role to the highest standard.
Build and maintain good stakeholder relationships
It is important to understand that a big part of the role is stakeholder management and that you do not always have to be a technical expert. It is vital to be able to explain, to both technical and non-technical audiences, why the acceptance rate is what it is, why moving to a new scorecard will improve automation and lead to lower losses, why you have to decline certain cases and why you cannot offer as much credit as the customer wants all of the time.
This is because having the buy-in of key business areas is incredibly important to managing strategic shifts within Credit Risk, especially with the pace of changing technology, data availability and analytical techniques. Business stakeholders are more interested in the detail behind credit decision systems than ever before and, as such, should be closely managed along the journey of strategic change.
In addition, Credit Risk has to interface many stakeholders and there are known conflicts of interest between Commercial, Financial, Credit and Compliance requirements. Navigating this landscape requires exceptional stakeholder management and negotiation skills.
A Commercial department wants to increase its acceptance and conversion rates. The Head of Credit Risk therefore needs to provide the best decision system, comprising policy rules which encompass scorecards, affordability, credit worthiness models and a stress test model. They also need to implement efficient credit systems which include a decision engine, open banking and front end systems.
With Marketing departments focusing on customer retention, the Head of Credit Risk will need to support this by providing the best selection data for campaigns and targeting the right customer quality.
Collections departments aim to collect the highest possible amount and stop roll rates for default customers. To that end, a Head of Credit Risk needs to provide the best collections strategies to reduce and prevent losses.
Finance departments need to validate their monthly budget and understand the value impact of each strategy. A Head of Credit Risk therefore needs to provide the right benefits and arguments to implement each strategy since any wrong moves could ultimately impact budgets.
Compliance departments enforce the following of all FCA and PRA legislation and submit regulatory reporting. In line with this, a Head of Credit Risk must ensure that all policies, rules and models follow responsible lending and treat customers fairly requirements, as well as implementing vulnerable customer policies and following GDPR when working with customer data.
Credit Risk affects and is affected by all areas of a business. This is why a good and well-respected Head of Credit Risk needs to manage all stakeholders’ expectations, alongside team workloads, development plans, as well as providing inspiration and motivation.
With Credit Risk being a highly numerate discipline, senior level communication is also a crucial skill. Simplifying the data and analytics results and communicating this to ExCo level stakeholders is an important capability in itself.
Adopt a commercially minded approach
It is vital to truly understand your business model. Credit Risk has evolved from a historic mind-set of policy rule and risk appetite management to something more complex. Now, it covers the end-to-end journey a consumer will take from initial application through to collections/completion of a loan.
The practice for managing the strategy is no longer just about managing bad debt, it is fundamentally about better customer engagement as a whole. This could be through omni-channel communications, driving revenue and value from the prospective and existing customer base and driving efficiencies and cost savings through technological delivery.
Be tech savvy
Decision science has come a long way in the past decade. Decision systems are capable of consuming and using more data than ever before in increasingly efficient ways to optimise the customer journey. Analytics and data strategies have also advanced quickly and there are now many options available to financial services businesses as to who they partner with. Many smaller technology companies are being founded and are subsequently thriving by delivering specialised solutions to manage specific elements of the customer journey.
A Head of Credit Risk should be aware of these advancements, what they mean to decision systems and how to best harness technology to extract meaning out of data, improve consumer journeys and create operational efficiencies.
Exercise strong leadership
A Head of Credit Risk needs to be personable, able to focus on the development and training of staff and provide support and guidance to the team while managing the journey along the strategic roadmap. The credit strategy of the business should be driven from the Head of Credit Risk and the team should be invested in that journey too. By doing so, they can foster a positive environment where change is embraced and staff are motivated and driven to achieve the overarching goals of the business while developing their own careers.
Devise a simple and effective strategy
Despite the wealth of data, analytical techniques and software now available to businesses to drive change, the strategy itself does not need to be complicated. The same high level principles are relevant and can be achieved in a different way, with the application of more data to substantiate how a business gets there. If a strategy is difficult to explain and be interpreted internally, then there is little chance of communicating this successfully to more senior or external stakeholders.
It is also important to know what a board’s risk appetite is. The job is not to reduce credit risk to zero as this would very likely lead to not achieving the P&L to sustain the business.
As a result, a Head of Credit Risk will take “measured risks” to meet their goals and not be too conservative and also not always agree with other departments who might be measured on volume.
Another vital part of strategic planning is scenario analysis and stress testing of the portfolios to understand the possible outcomes in a severe but plausible stress situation. This could lead to many things, such as making different lending decisions or identifying hotspots in the book and how to best protect them in a downturn.
As a credit risk leader, one needs to strike a balance between accepting and limiting risk exposure. This requires a high level of pragmatism in order to lend money on a probability basis, knowing that most decisions will be right but some will be wrong with the benefit of hindsight.
While a Head of Credit Risk must wear many hats in order to successfully achieve an organisation’s overall commercial goal, the ideal industry professional to take on this role is different for every business depending on their strategy, position in the market, future plans and approach to risk exposure.
We would like to thank the following Credit Risk experts for their generous contributions and insights which have helped to inform this article:
Ken Doyle, Head of Credit Risk, Development & Analytics at Specialist Motor Finance Limited
Rajeev Marwaha, Chief Risk Officer at Saffron Building Society
Tamas Kopanyi, Head of Credit Risk - Collections and Recoveries at SBAFS
Carla Mateus Lourenço, Head of Credit Risk at Selina Finance