While the developed nations are slowly recovering from the financial chaos of post depression, the credit risk managers are facing growing default rates as household debts are increasing with almost no relief in sight. As per the reports of the International Finance which stated at the end of 2015 that household debts have risen to by USD 7.7 trillion since the year 2007. It now stands at the heart stopping amount of a massive USD 44 trillion and the amount of debts increased in the emerging markets is of USD 6.2 trillion. The household loans of emerging economies calculating as per adult rose by 120 percent over the period and are now summed up to USD 3000.
To thrive in this market of increasing debts, credit risk managers must consider innovative methods to keep accuracy in check and decrease default rates. A good solution to this can be applying the data analytics to Big Data.
The term Big Data has been defined and redefined by many, it is basically a data set that can be captured and subjected to any platform of data analysis to identify patterns and trends that can generate useful insight to amplify business results. These data analytics processes give businesses a variety of insights on their customers based on different factors. Insights that can be obtained from these processes are boundless and can only be limited by the type of data at ones disposal. Worldwide banks and major financial institutions are beginning to realize the importance of their data and are employing data analytics procedures to get the most out of all information at their disposal, especially in the context of credit risk management. Data-centric cultures are slowly being incorporated in the main stream business practices around the world for smoother functioning.
Over the span of the upcoming three years the two biggest risks faced by the banks will be – 1. Credit and 2. Liquidity. But credit risk managers can use this opportunity to their advantage and that can be done in the following ways best:
The value of insights obtained from Big Data analytics to the retail banking sector alone is estimated to be billions of Rands.
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