Resilient but recalibrating: the turning credit cycle and the rise of AI

Senior credit executives see a stabilising economy masking uneven stress across sectors, as attention shifts to data quality, AI adoption and regulatory readiness. While aggregate indicators suggest resilience, participants noted that performance is diverging sharply across borrower types and sectors. One senior risk head described the current landscape as a “K-shaped recovery”.

Key takeways:

• Credit conditions remain broadly stable, but cracks are widening in sub-prime consumer and commercial real estate exposures.
• The credit cycle is increasingly ‘K-shaped’: strong performance among higher-income borrowers contrasted by rising strain in lower-income segments.
• Private credit markets are flush with liquidity, yet concerns grow over compressed spreads and deployment discipline.
• Commercial real estate – particularly office and multifamily – continues to present the most visible stress across portfolios.
• Banks are accelerating efforts to modernise data integration and automate credit processes, but the underwriting model itself remains largely unchanged for decades.
• AI is showing promise in document processing, anomaly detection and scenario-testing, but not yet in replacing human judgement in underwriting.
• Regulators are still defining their stance on AI, favouring ‘learning engagement’ over prescriptive rules, though institutions expect scrutiny to intensify.
• Credit leaders foresee an era of consolidation and talent transformation as AI reshapes the size, structure and skill base of future risk functions.