“While credit risk has remained the same, the strategies and tools used to assess and mitigate this risk have evolved dramatically. Traditionally, credit decisions were made based on historical financial statements, credit scores, and human judgment. Today, financial institutions are leveraging vast datasets, including traditional financial data, transaction patterns, consumer behaviour, social media sentiment, market trends and economic indicators like interest rate changes and unemployment rates. Exposure to climate change is even considered. The amount of data needed to make a decision around credit is ever increasing. It used to be a simple matrix, but it has become much more complex,” says Bochedi.
These datasets allow companies and financial institutions to predict future performance and identify risks from external factors like political instability. From all of the data, sophisticated, predictive models can forecast potential risks with greater accuracy.
Interestingly, Bochedi points out that the quality of the leadership within a company now forms an important part of a credit risk assessment. “Leadership is not only about technical knowledge and analytical skills, but also about communication, collaboration, decision-making, and ethical behaviour. A CEO will determine the governance, culture and strategy of a business.”
CGIC operates within the credit data default space – protecting businesses against non-payment from their customers. “Our forte lies in the ability to secure relevant and vital information incorporated with market intelligence, as a tool for a synergistic communiqué to support the business of our clients in both local and international markets. CGIC has a large team focussed on collecting and evaluating data,” he adds.
Reducing Credit Risk
“Risk is a constant variable. In risk management, the only way to future proof your business is to constantly review your risk management policies. Establishing a risk-aware culture means that companies not only focus on identifying and mitigating risks but also embed risk considerations into every decision-making process. Businesses should have a policy that dictates how often risks should be reviewed in order to stay abreast with any changes,” states Bochedi.
Avoiding overexposure to a single customer or industry sector by having diverse customers spreads the risk and minimises potential losses in case of defaults. “Furthermore, if there is a recession, the credit risk is high. Customers face greater risk of financial stress and more businesses close when there is an economic downturn,” he explains.
As credit risk continues to evolve, businesses must adopt forward-thinking strategies to protect themselves from potential financial losses. Credit risk insurance, combined with modern risk assessment tools and a proactive risk management culture, offers a powerful way to future-proof a business. By leveraging comprehensive data, fostering diverse customer bases, and regularly updating risk management policies, companies can effectively navigate economic uncertainties and mitigate the impact of defaults. As Bochedi highlights, embedding risk awareness into every business decision ensures long-term stability and success in an unpredictable market.
