Integrated Loan Portfolio Modelling and Risk Management

Michael Szwejbka

In 2018, the CEO of a major bank quipped “I’ve seen more changes in the banking industry in the last ten years of my career than the first twenty”. Blockchain, fintech, cybersecurity, mobile banking, cloud computing and non-bank lenders hastened the pace of change and presented new opportunities, and problems, for banks. Even something as ubiquitous as email (not to mention social media) changed the way bankers interact with consumers: changing consumer habits forced banks to adapt to a different style of interacting with customers. The ageing architectural fortresses of strength have given way to caf -banks, where you can take out a personal loan as easily as ordering a latte. These changes and many others have had a visible impact on the banking industry. But how have banks’ internal processes changed? Have the so-called back-office operations kept pace with the changes? In managing a bank, these changes reach a more fundamental level, requiring the various background risks to be integrated into the balance sheet components.

Banking is synonymous with risk-taking, with arguably the most central risk being credit risk. The main business of bankers is to make loans and be