Working in Credit Risk
If you’re looking to launch your career in risk analysis or risk management, credit risk could provide a great opening gambit. Offering an excellent view into the business and its interests as well as the type of people interacting with the business, you are well poised to climb the credit risk career ladder or move into more senior finance positions, or even take a different direction and head into sales or marketing.
But before we get ahead of ourselves, what is there to understand about working in credit risk? If you start out as a credit analyst working for a bank, your role is to assess the credit-worthiness of the clients they take on to determine – via the data available to you – how much risk is involved with those relationships. It is your responsibility to determine a client’s capacity to repay a loan from the bank, what the risk of default on a loan is and any other outstanding liabilities the client has. However, the ultimate decision regarding whether the bank chooses to lend to a particular client is made by someone else, but that decision rests on the case put forward by the credit risk analyst.
To ascertain this information a credit risk analyst must collate data from financial reports, news reports, sales data and so on, regarding both their client and its competitors, to understand the
ir findings within an industry-wide context. At this point your relationship-building and people management skills should come into play as you utilise your rapport with the client to extract further data from them. Once you have the data, it’s time to analyse, which is perhaps the most time-consuming part of the process.
You’re looking for both quantitative information as well as qualitative, so everything from market share and sales momentum for the former to an assessment of brand quality and general management performance for the latter. The numbers and exposures detailed in a company’s annual reviews are also fodder for your risk analysis so be prepared to get into every proverbial nook and cranny.
Sifting through all the information you want to be identifying where the areas of risk exist so you can tot them all up in order to come up with a plan of risk mitigation. Don’t expect that just because you’ve found the risks, you can simply eradicate them. While you can eliminate some, like tumours others must simply be made smaller so they have less of an impact on the business and its stakeholders and customers.
One way the bank itself can mitigate risks is by requesting collateral against any exposure, minimising the allocation of the more risk-heavy products and demanding third party guarantees. This places conditions on the client as part of the risk mitigation process, and can demand anything from quarterly sales remaining above a certain percentage to a steady level of profitability. It is your responsibility as credit risk analyst to monitor those ‘credit covenants’.
If you’re working in credit risk you should make it your business to know what is happening industry-wide and that means keeping abreast of it in the news. That way if you come across something in your daily Google news search that could potentially impact one of the bank’s clients you can act proactively and get ahead of the situation. Understanding your client within the context of its competitors and the overall industry will certainly help you do your job more effectively.
What skills should you have to work in credit risk jobs? In addition to being great with people and having great business acumen, you should also make it a priority to know your client’s operations inside and out. Undoubtedly, your ability to apply critical thinking and reasoning is highly important, as is your aptitude with mathematics in terms of identifying patterns and analysing data in order to deliver clear conclusions about the information you’re working with.
You’ll find yourself needing to bring others around to your way of thinking, so having the confidence and communication skills to be able to do that is key. Also, remember that people in credit risk roles at corporate banks are dealing with enormous amounts of money on a daily basis so there is little room for mistakes. Go out of your way to be accurate and consistent in your work and just like you were taught to in school, show the work behind your decisions and solutions so you’re always able to justify and explain your thought process, particularly if one of them should result in an error.
Candidates coming into careers in credit risk typically hold degrees in mathematical subjects such as finance, accounting or business. Hiring managers are looking for that mathematical prowess, analytical thinking, and logical reasoning in conjunction with the softer skills like discipline and accuracy.
The Earning Potential
Credit risk analysts can earn a decent salary, particularly if you secure a role in one of the main cities. So, in the UK, a London role will likely start around £40-50,000 while a more regional position is looking more at around £30-33,000. Going up the credit risk analyst career ladder, the more senior analysts will see their annual earning potential increase to £50-80,000