Using external data for a corporate credit loan portfolio: 6 key questions to consider

By Svetlana Borovkova & Monika Furdyna / July 2020

Increasingly, banks use external data for assessing credit risk of corporate loans portfolios. The reasons for that range from external data availability and quality and lack of internal data to the need for more advanced quantitative methods. More data is needed, and many data vendors can supply it. Based on our experience at Probability & Partners with Credit Risk data and modelling we have identified 6 key questions that will help you in making a well informed decision about how your institution can benefit from external data and which data vendor you should chose. Following our framework, you make sure that you get the most information about the dataset possible before purchasing it and you minimize the risk of costly iterations or a potential disappointment.

Key takeaways

We have identified six key questions for decision making with respect to using datasets from external providers. When being used as regulatory models, specific requirements are applicable. Our approach – as described in this paper – is applicable for both regulatory and non-regulatory models. The approach focuses on six key questions regarding definition of default, granularity, scope of application, data sample, number of defaults in the dataset and the availability and quality of the explanatory variables, and will guide you to make well informed decisions before purchasing datasets. These are generic points of attention, applicable for most institutions. To make this approach more tailored to your institution, your own specific additional needs can be incorporated.