Credit Risk Management Systems 2010

The Credit Crunch highlighted the deficiencies of the ad hoc and fragmented approach to credit risk management. Financial institutions now are faced with the challenges of meeting the many new risk-based regulations and running economically viable credit businesses. Many have started to rebuild their risk technology strategies and move towards integrated risk management. Being able to achieve integration while keeping pace with evolving regulations will be key for financial institutions active in this market segment.

Most tier-one and tier-two financial institutions in European Union, United States and Asia Pacific have completed the first iteration of their Basel II implementation. However, new regulations from local and international regulators mean these institutions have to adapt their systems continuously. At the same time they are working on key Pillar II functionalities such as stress testing and model validation as well as seeking to gain additional value from their investment in Basel II-related technology.

Basel III looms and some credit risk managers are anticipating how even more regulation will impact their system requirements. Chartis has observed increased demand for improved counterparty risk and issuer risk data management, collateral management, credit value adjustment (CVA) as well as ways of better measuring credit and market risk. Some of the more advanced banks are looking for near-real-time business intelligence, analytics and reporting capabilities as well as solutions for risk-based credit pricing.

Basel II is still fuelling demand for credit risk management systems in emerging regions such as the Middle East, Africa, Eastern Europe, Asia Pacific and Latin America. Financial institutions in these regions have a greater appetite for bundled solutions combining credit risk management with other key risk systems such as asset and liability management (ALM), market risk and operational risk.

On the supply side, a handful of vendors lead the way. These include Algorithmics, Moody's Analytics, SAS and SunGard. These vendors offer multiple solutions across the enterprise risk management (ERM) spectrum and coverage across multiple asset classes and products. Integrated offerings provide value for financial institutions looking for a cost-effective one-stop shop for a range of risk and compliance solutions.

This report is an update to Chartis' 2009 report "Credit Risk Management Systems - Market Analysis". It examines the demand and supply sides of the market for credit risk management systems. It covers new market and regulatory requirements, market size and the competitive landscape. The report also provides a five-year (2008-2012) expenditure forecast and a discussion of expenditure priorities. Appendix A is a broad discussion of technology requirements for credit risk management and a section on economic capital and credit portfolio management can be found in appendix B. 

Vendors covered in this report include (but not limited to): Algorithmics, Experian, FinArch, Fiserv, FRSGlobal, Kamakura, Moody's Analytics, Murex, Oracle, SAS, Sophis, SunGard, Thomson Reuters.