Economic change affects everyone in different ways. Some people are resilient during tough times, while others are more susceptible to stresses like unemployment or interest rate increases. Even among consumers with very similar credit scores, their ability and willingness to make repayments can vary widely during an economic downturn. The problem is, traditional credit scoring systems put them all in the same basket.
This means profitable relationships can be damaged, by reducing credit limits for example, and potentially valuable new customers are kept out of reach by dramatically raising credit score cut-offs. But we have a better way. Our stress testing tools rank customers in order of sensitivity to severe financial stress, even those within the same narrow credit score band. This means you don’t have to use the same broad brush approach for all your customers. That way, you can manage risk more accurately and seize new opportunities with confidence.
Accurately work out how existing and potential customers will cope when faced with unexpected financial stress. Better prepare for economic disruptions, make smarter business decisions and understand the health of your portfolio.
Reduce the impact of economic volatility
Identify resilient customers
Aim the right products at the right customers
Spot customers who are susceptible to severe financial stress
Improve the resilience of your business in tough times
Our stress testing tools help you manage risk better and make smarter lending decisions. Spot customers who are the most susceptible to risk at times of financial stress and understand how economic change will impact the financial health of your portfolio.
A simple and powerful tool to rank customers by their sensitivity to severe financial stress.
Stress testing is a method that managers use to understand how sensitive their portfolios are to severe economic change, such as a recession or financial downturn. This information can then be used to inform decision making, adjust lending policy, check susceptibility to risk and ensure compliance with regulatory guidelines. Stress testing has to be done in such a way that it covers as wide a range of possible economic scenarios as possible. This is made possible using a combination of expert advice from economists and credit risk analysts, and detailed economic modelling. The best stress tests use clearly defined economic scenarios to determine their impact on a country-wide, local and household level. This information provides lenders with valuable information about the possible effect severe economic change will have on the likelihood of people defaulting on loans, and the financial cost of this to the lender.
Stress testing is done by financial and economic experts who build models to analyse the impact of different economic events on a lender’s customers and, in turn, on their ability to repay loans and service debt on time. These models show the probability that customers will default on loans or go into arrears on their payment. This information can inform lending policy (for example, to impose tighter lending restrictions to limit losses) and ensure a lender complies with regulations, for example, capital requirements. The stress testing is, ideally, tailored to the specific requirements of individual lenders. For example, stress testing can forecast the impact of severe economic changes on specific industries, occupations and skills and geographical areas.
Stress testing in financial services uses economic modelling, algorithms and economic experts to forecast the effect different economic scenarios would have on a financial services business, for example, a bank, building society or other lender. Severe economic change can happen at any time for any reason; causes might include a pandemic, extreme weather events or it might be just part of the economic cycle. In order for organisations to protect themselves from risk, or to limit the risk to their business in the event of economic change, stress testing is carried out so they can be prepared. For example, stress testing might identify that a certain set of borrowers is particularly sensitive to an increase in interest rates because they might not be able to meet their repayments. For other customers with significant amounts of savings for example, an increase in interest rates might be good news. Stress testing in financial services can also be used to assess the impact of a recession on an investment portfolio, and the extent to which this would lead to losses or shortfalls on financial returns. With this knowledge, organisations put plans in place that can protect or limit their financial losses, and those of their customers, in the event the worst happens.
Solutions for regulatory compliance
Credit Risk Management
Make confident credit decisions
Safeguard your business
Understand the latest consumer credit trends