Question

What are the special challenges of international credit analysis as opposed to domestic credit analysis? How can a bank meet these challenges?

Answer 1

There are special challenges of international credit analysis as opposed to domestic credit analysis. First and foremost is the challenge posed by foreign exchange factor. International credit analysis will have to take into consideration fluctuations and changes in exchange rates and this may make the situation complex. On the other hand domestic credit analysis does not involve any foreign exchange factor and hence does not have to deal with that complexity. The second special challenge of international credit analysis is with regards to data management. In case of international credit analysis data management becomes more complex as more data sets are involved. The last challenge is with regards to proper analysis of risk exposure. In case of international credit analysis the nature of risk exposure changes because of different external factors and internal factors that the international exposure brings with it. Risk analysis is more straightforward in case of domestic credit analysis.

A bank can meet these challenges by taking proper measures and outing in place proper analytical framework. A bank will have to develop the ability with regards to efficient data management. This will also ensure the bank to have a robust risk modeling framework in place as well. Proper reporting and incorporation of foreign exchange rates in the credit risk models will help the bank to make its credit risk management process more systematic.