In recent years, the process of assessing and managing credit risk has undergone fundamental changes. These changes have been driven by advances in financial theory, market developments, changes in regulation and accounting rules and the availability of sophisticated modeling tools. These changes have also expanded the number of professionals that need to understand credit risk, to professionals including lawyers, accountants, consultants and other professionals.

Given this dynamic environment, financial institutions are facing many challenges. They need to prepare for new regulatory requirements, adapt to new accounting standards, enhance the skills of risk professionals, accelerate decision-making, ensure a consistent approach to risk management, improve the risk/return parameters of portfolios and implement monitoring systems. They are also reconsidering the profitability of relationships. With so much change, institutions are increasingly relying on training providers and other external service providers to assist them in the successful execution of their strategic objectives.

Changing Market Landscape

Historically, leading institutions have utilized training as a competitive advantage; empowering their professionals to ensure the organization is positioned to address the challenges of the changing environment. However, more institutions and professionals are recognizing the importance of training given the changes in the market conditions (i.e. the credit crunch and industry consolidation) as well as the ever-changing regulatory environment.

Jurisdictions around the globe are standardizing the way institutions report and calculate financial information; recent initiatives such as Basel II, Solvency II and the U.S. Securities and Exchange Commission’s (SEC) proposed adoption of international financial reporting standards (IFRS), provide institutions with an opportunity to level the playing field, these initiatives create challenges as well as opportunities. Changing market conditions and the evolving regulatory environment makes it essential for firms to stay ahead of the curve.

While credit training can be a significant investment, the cost of untrained professionals can be more significant. Institutions that take advantage of training and education will benefit from increased transparency, efficiency and best practices. This could result in improved financial performance and regulatory compliance.

Developing a Training Strategy

There are many factors that can impact an institution’s training needs including: an institution’s size, an institution’s short-and long-term strategic objectives, changes in regulatory requirements, market conditions and any organizational changes such as a merger or management changes. Given the many factors that can impact an institution’s training needs, a long-term strategic plan should be developed to clearly evaluate the needs of the firm, how a proposed program will meet the needs of the institution and its employees and finally how the program will respond to any changing needs.

If an organization does not invest in a proper evaluation of the alternatives, a training program may not yield tangible results. As institutions prepare to invest in training, it is important that executives, managers and credit professionals ensure that the training program being evaluated is aligned with the strategic objectives of the firm. When the training is linked with the business objectives of an organization, metrics can be established to evaluate the success of the program. This should help to ensure a positive outcome of a training program and enable the institution to identify tangible results that measure a program’s success.

Similar scrutiny should be performed on the provider of the program. A full proposal should be required, including a needs analysis. In addition, organizations should obtain references from other organizations that have utilized the training provider. Finally, the institution should evaluate the credentials of the instructors — this is vital as the instructor will be leading the seminars and will be the face of the “organization” and primarily responsible for the transfer of knowledge. Credit training is a huge investment and trusting it to an organization or instructor that may not have relevant experience can be costly.

Taking these basic steps does not always guarantee success, but it does ensure that your organization will avoid the pitfalls that some organizations have not avoided. It will also provide some measure of comfort that your organization will maximize its investment in credit training.

To learn more about how training services can benefit your firm, please contact Christopher Murphy at Christopher.murphy@moodys.com or visit www.moodys.com/trainingservices.