A corporate credit risk manager is like a doctor, analogises Ananth Sankaran, Director, Institutional Wholesale Credit, Risk Management, ANZ, Singapore (http://bit.ly/F4TAnanthS). “That means, decisions can go wrong from time to time, and that does not make a corporate credit risk manager a bad decision-maker. It depends a lot on the ability to read symptoms from the relationship managers in the business side, and also to have ground knowledge to interpret weaknesses and threats from financial disclosures and meeting notes with the client,” he explains, during a recent interaction with Business Line, over a coffee in a Singapore mall.
Cautioning that if the symptoms are wrong, the decision can also go wrong, Ananth adds that the ability of extracting and verifying information skilfully is where the job of a corporate credit risk manager gets valuable. “That is why, in this job, the more experienced manager is more often a better manager.” Our conversation continues over the email.
Excerpts from the interview, in which Ananth shares his personal views on some of the concerns of corporate credit risk managers.
What do you see as the top concerns of corporate credit risk management?
Generically, this would mostly be the measurement of financial flexibility of corporate to absorb shocks and their ability to retain the willingness, capability and capacity to repay on demand. Corporate risk management depends largely on three factors, namely, internal, external, and financial support. Internally, the company’s business model and quality of management play an important role. Externally, the industry in which the company functions, its market share, competitiveness and barriers of entry rule. Additionally, the financial and liquidity support that any company enjoys will play an important role in terms of carrying out expansion plans.
Your observation about the issues before Indian credit risk managers.
Indian risk managers operate in a growing and dynamic environment. At the same time, archaic regulations, some originating from even the old British rule, have not totally eradicated the “Licence Raj” regime. Not to forget, the corporate world also heavily relies on the political waves between opposing parties even if the financial policies have not altered materially in the last few years. The legal environment is another major concern for banks to be able to obtain judgment swiftly, then enforce and realise security, whenever appropriate. Given these complexities, the Indian risk manager has to be more aware of these limitations and factors and ensure that sufficient comforts exist before making credit decisions.
How are corporate credit risk managers mitigating these risks innovatively?
There are a few ways in which corporate credit risk managers are able to mitigate risks. These include devising credit policies and business strategies (including those that are country-specific) to operate. These policies are devised to ensure a uniform approach that enables stability for the lending bank. At the same time, business strategies are responsive to client segment targets that generally are able to meet the credit policies.
Banks also employ risk measurement tools such as credit rating, which provide useful information such as probability of default and loss given default, depending on the structure (e.g. secured or unsecured, and committed or uncommitted).
Additionally, corporate risk managers also strive to have bank exposures structured to provide additional recourse (such as guarantors), specific sources of repayments (such as assignment of receivables), and in considerable cases collateral (such as debenture charges and legal mortgages).
As a growing trend, the banking community also stays closely knitted to exchange information between themselves and from credit bureaus and rating agencies as well as with the various industries and some important clients who provide ground information from time to time, particularly in the lower-tier clientele segments.
Would you like to specify the skills that are increasingly becoming relevant to credit risk management in financial institutions?
Credit risk management, despite all the quantitative and qualitative tools, is still very much a manually-derived decision. As such, the skill sets of bankers involved in this area are very important. These skill sets include obviously a good educational qualification, preferably with financial and/or mathematical, accounting backgrounds.
Apart from that, it is also important to have wide product knowledge (such as in lending products, trade finance, financial derivatives, etc.), and good legal ground knowledge. From a character perspective, the staff should have strong interpersonal skills and boldness to stick to strong decisions that may not go with the wind. As required in almost all other jobs, a good presence of mind and ability to think out of the box is required.