Will risk scores and credit ratings survive #COVID19? Joris Peeters will tell you more about this in the next two minutes.
Predicting business risk in times of severe economic shocks : will credit scores and credit ratings survive the Corona virus?
On behalf of Altares Dun & Bradstreet I would like to explore this subject briefly in the next 2 minutes.
Driven by data science, the credit scores and credit ratings of Altares – Dun&Bradstreet, are designed to use current and historical data, to predict the risk of a company bankruptcy in the course of the next 12 months.
As of mid-march, with the arrival of the Corona virus in Europe, our countries are experiencing a severe economic impact. Meanwhile, governments and central banks alike, have rushed in to support companies which are in most need of help.
Against this background, it remains quite uncertain how our future will look like. More specifically, one may question whether our credit scores and ratings, and the prediction they provide, will remain relevant and useful.
In order to provide a fact-based answer to this question, at Altares-D&B we have gone back in time to the nearest big economic shock, being the financial crisis of 2008/2009.
What we have observed during this period, was that despite the abrupt, sudden and sharp economic downturn during 2008/2009, our scores and ratings performed remarkably well.
Certainly, we noticed they were impacted due to the crisis, but our analysis revealed that our risk indicators, and the data underpinning them, remained relevant and robust even through these harsh economic times.
Of course, we do realise that even if an analogy can be drawn with a previous crisis, things may evolve and work out differently this time.
It is for this reason, that we have put in place a concrete action plan:
Firstly, we are following up the predictive performance of our scores and ratings even more closely, and will take corrective action if and when required.
Secondly, we have analysed the liquidity buffer of companies in our databases, and plan to be making some pro-active rating changes for certain companies.
Lastly, work is underway to obtain a more precise insight in the very recent payment behavior of companies. Even though these dynamic elements are already included in our risk indicators, such analysis may still provide very useful insights in the evolution of credit risk in the current environment.
This bring me to the end of my contribution on how credit scores and rating can and do indeed survive a severe economic crisis. I wish pleasant day, and good health.