Managing Credit Well.

 It’s been just under a year since the start of UKRAINE Russia energy crisis. During this period, more so than ever, when I called around to speak to the heads of Credit at key trading organizations- all I could hear were echoes of multiple staff sickness because of stress.  I could hear the strain in the voices that had once spoken joyfully during better times.

 I shall reflect on my learnings as a professional in the Credit Risk space having lived through some of the most cinematic eras of credit downturns and what departments can do to ensure they have the right tools in place to manage the stressors. I can put my hand on my heart and say what a well-managed credit department can achieve during a tremor, and also under one that has had its resources constrained.  

The Ukraine Russia crises tested the:   

1.     The physical and mental health of the precious resource “the people” who coped with the high demands of the data churn required to appease and satisfy leadership, that positions were covered, and risks reduced swiftly.

2.     The robustness of processes and organizational structures lending to communication that allowed for swift decision making

3.     Knowledge and expertise held within the business

The people

What can go wrong? 

People within a risk function are the precious commodity that require the most support; during a credit crisis the workers will feel the heat the most; The pressure is tremendous:

·       to produce exposures ensuring corporate group structures are correctly qualified and there is no risk or error of fat fingering.

·       to ensure what we report today will remain true tomorrow and that we can explain the story

·       to work long hours. The situation can be exacerbated as we now work from home and no longer having the team environment to lean on making burnout signs even more difficult to spot.

 Not providing, the right framework, planning, and having the right support structure for staff can lead to departments not being able to manage risk within the tight frameworks required; loss of multiple team members due to burnout or resignations and ultimately expose a company’s ability to continue business, risk liquidity, and potential bad debt if not prevented in time.

 Solutions/ Reflections

Understandably, cost cutting is at the forefront of an organization, However, I would argue risk functions and more importantly credit risk functions should be the last in line for the chop.

Good credit leaders understand that not all the people the organization hires in a risk function are cut out for the type of pressure found in these environments. Often it is found that individuals will quickly succumb or wilt because it is not fit for their personality type. A strong advocate of personality type testing as  I believe it ensures that you have the right people working with their strengths. As the saying goes you cannot train a fish to climb a tree whose place is in the water. My favorite is the age-old Myers Briggs personality test and DISC profiling.

 Adequate staffing of credit departments ahead of a credit down turn is vital as is training, and succession planning. These topics require reflection and should become a priority as staff turnover is now higher in organizations than it has ever been, as individuals seek to broaden their horizons moving away from that job or company for life.

Build regular check- ins with team members and ensure an open and transparent dialogue about additional support. This ensures that signs of a burnout are spotted sooner than later.

 Make available regular coaching and mentorship

Lastly, but the most important: is planning and ensuring your departments are ready to cope with credit downturns.  This means tracking of KPI’s against resources to ensure that departments have at least a 10-15pct extra bandwidth to manage additional growth/ “surprises” in additional to what is already part of the overall group growth strategy.

I would iterate all the above are important and missing or short-changing any leaves a credit department exposed and prone to mass employee exodus and sickness.

Choosing the right IT solution

 I ’m sure some of my friends and colleagues from the industry would agree that; Deep water, 2008 financial crisis, and Enron were probably not the nicest eras to manage credit risk especially when systems and IT were no-where as advanced as they are today. Therefore, making priority,  the robustness of IT processes and organisational communication, that allow swift of decision-making.

 Credit risk management solutions- the challenges.  

I have heard so many energy trading firms struggle to accurately calculate exposure across multiple layers of trading group structures, across several commodities, matching fixed and floating pricing structures to exposures, applying netting/ not netting. The variables and permutations are endless.

Then, to be able to present the numbers and truly tell a story of what is presently going on and then how to reduce your exposures in meaningful way without jeopardizing business relationships is a difficult process to navigate for the team, the leaders and the doers in the departments.

Help is at hand. There are a few options out there as we speak that have systematically introduced solutions for credit management and some have gone as far as building end to end processes from Counterparty onboarding, CRM, Margining, to Exchange management solutions.

Choosing the right IT solution is also important in order to understand where your company is within your overall growth strategy. This means the solution should be:

o  Built for the future and not only for what you- want to achieve today for. (Begin with the end in mind)

o  In line with the company’s growth strategy

o  Upgradeable when required.

o  Integrated embedded to the organizations' other key processes

Clear communications lines between all stakeholders and players-

 It is so important to ensure during a credit crisis that you have a crisis management plan (already embedded in your framework) that defines which departments need to be present when key decisions are taken during a crisis management strategy discussion. The front office leads, Finance, Risk functions accounts payable/receivable. Some would argue there are too many chefs in the kitchen how are we going to get any sensible actions.

The risk function will take the decision, but the implications of this decision will impact current trades/ futures trades and overall trading strategy for the front office as a whole.

A good outcome is when the implications of decisions are fully understood and both decision makers and all parties impacted are onboard.

Knowledge and expertise in the right place

Ensure your team have the right skill set to execute their role; this means ensuring that there is a structured training plan that includes meet & greet plans with stakeholders. The training should not stop after one month, there should be regular check-ins with line managers.

 If any of the above resonates with you or your business and you would like a no obligations discussion please reach out. Even only to share an experience. 

Author Shally Bhalla

corporatelifesolutions.com

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