Is a Gen AI Revolution Coming to Credit Risk Management?  

Do you specialize in credit risk? Have you used generative AI for work in the past week? If you said “no,” there’s a good chance your answer will soon change. 

Gen AI is beginning to influence credit risk management, with early implementations showing promise in improving efficiency and accuracy across the credit lifecycle, according to recent research by McKinsey, which surveyed senior credit risk executives from 24 financial institutions, including nine of the top 10 U.S. banks. Here are some key takeaways: 

• Rapid Adoption: Gen AI is swiftly being integrated into credit risk processes. Twenty percent have already implemented gen AI use cases, and 60% plan to do so within the next year. 

• Versatile Applications: Gen AI’s potential use spans the entire credit lifecycle. It can personalize communications, summarize meetings, review documents, ensure policy compliance, compile customer information, automate performance reports, suggest optimization strategies, and draft legal contracts. 

• Current Use Cases and Benefits: Some banks use gen AI to prepopulate climate risk questionnaires or draft credit memos, significantly reducing the time required for these tasks. These applications have improved accuracy and freed up capacity for other activities, showcasing gen AI’s potential to streamline operations. 

• Challenges to Overcome: Scaling gen AI poses challenges. Key barriers include risk and governance concerns, data quality issues, and a skilled talent shortage. Seventy-five percent of surveyed executives highlighted risk and governance as significant obstacles, while 67% noted a lack of gen AI capabilities within their organizations. Ensuring data quality and establishing formal support structures are critical to successful implementation. 

• Building a Gen AI Ecosystem: To fully leverage gen AI, financial institutions should develop a structured approach. This includes creating an AI roadmap aligned with business strategy, securing a gen AI-ready technology stack, and establishing robust governance frameworks. Institutions that implement modular solution architectures and reuse existing components can accelerate their gen AI deployments, achieving significant efficiency gains. 

“Gen AI has arrived in the credit risk world but has yet to transform it,” McKinsey wrote, adding that current uses are mostly narrow, noncustomer-facing, and address specific operational pain points. But more change is coming: “Even the most cautious of these executives believe that gen AI will be part of their companies’ credit risk processes within two years.”  

What are you seeing out there? What are your predictions or concerns? We’d like to hear from you. Email us at [email protected].