14 Jun 2022
The longer the period over which financial obligations remain, the greater the variability in risk. By its very nature, real-estate is a long-term asset, and so it is vital to assess credit risk both at the commencement of the transaction and as it evolves over time. By its very nature, real-estate is a long-term asset, and so it is vital to assess credit risk both at the commencement of the transaction and as it evolves over time.
With the consequences of COVID-19, global supply chain disruptions, and ongoing climate-related concerns still unfolding, the assessment and monitoring of credit risk is becoming increasingly challenging.
In secured real-estate lending, there are three key factors in the analysis of credit risk:
The ever-growing unpredictability of the modern marketplace makes already difficult decisions for real estate even harder. But with the utilisation of accurate data combined with AI analytical tools, the risk to large-scale portfolios can be minimised.
Generally speaking, lenders will enter transactions with an information disadvantage compared to that of the borrower.
Initially, the borrower likely knows the property intimately, while the lender relies on 3rd party information sources such as general market data, expert reports, internal data, and credit agency data. Consequently, this information asymmetry will be even larger during the loan term, as the lender is usually reliant on the information that is provided by the borrower. In some cases, this can result in lenders only finding out a building has been vacated once the existing tenant has left. In cases like these, early intervention is key, but only possible with access to reliable data.
A larger pool of both open source and proprietary data, combined with advancements in artificial intelligence (AI) technology, has opened up new avenues through which lenders can monitor their credit risk despite operating in a rapidly changing economic environment.
For instance, we have developed the program DataScout, which allows access to multiple data sources on a single platform. This enables lenders to create multi-faceted digital profiles both at initiation, as well as during the term of the loan.
By utilising DataScout, lenders can:
The demand for robust credit risk solutions has never been greater, but without access to accurate, real-time data, lenders leave themselves vulnerable to significant losses in revenue. However, by working in collaboration with programs like DataScout, lenders can operate with confidence in their decision-making from the point of commencement through to enforcement.