Top corporate credit risk management trends that can help business lenders thrive in 2025

A version of this blog was first published on Bizpreneur Middle East

Ask any business lender, and they’d probably say that 2024 was a bit of a mixed bag. While inflation and interest rates relaxed, geopolitical turmoil, regulatory scrutiny, and non-financial risks increased. This ongoing uncertainty has forced corporate credit risk managers to look beyond the confines of traditional risk management. On current evidence, there’s no reason to expect that 2025 will be any different in terms of unpredictability and risk response. Given this, let’s look at some risk management trends that forward-looking business lenders need to know if they want to thrive in today's and tomorrow's ever-evolving risk landscape. 

1. Increasing tech adoption

Tech adoption has been on the upswing across industries for the past few years and the financial services sector is no exception. According to Gartner, technology spending by this industry is growing at a rate of 9% every year and is projected to reach $1 trillion by 2028. This comes as no surprise given the immense transformative potential that technologies such as Machine Learning, GenAI, big data, etc can have on traditional risk management processes such as early risk detection, future risk prediction, fraud detection, and ongoing monitoring. In fact, in a recent survey, more than half of PE firms say that incorporating AI tech has made processes such as portfolio monitoring, risk management, and due diligence significantly easier. Going forward, the ability of such tech to enable proactive monitoring and more informed, real-time decision-making is likely to make its adoption the norm rather than the exception.

2. Optimizing resilience

The business world has witnessed a mind-boggling amount of disruption in the past 4 to 5 years. Digitization, business interconnectedness, and other macroeconomic challenges have resulted in a fast-evolving risk landscape. Against this backdrop of ongoing disruption, banks need to be prepared for anything and everything not only in the present but also in the future and beyond. As a result, resilience planning has become a business imperative. Underscoring its importance is the fact that it is now also a regulatory focus point. And the key to optimizing resilience is to inculcate a more adaptive approach to risk management. The ability to identify potential risks early and monitor trends and business creditworthiness regularly is critical for lenders to respond proactively to risks and thrive in the face of uncertainty.  

3. Integrated risk management

With new risks emerging constantly, the line between financial and non-financial risks is blurring. Risks that were considered innocuous yesterday are now being given top priority. That’s because, non-financial risks such as ESG, operational risks, climate change, or reputational risks can prove as costly as financial ones today. It’s no wonder then that CROs now spend about half their time managing non-financial risks. In addition, ongoing uncertainty has made risk forecasting more difficult. All of which highlights the inadequacies of idly waiting for traditional time-lagged financial reporting for risk management. FIs now realize the importance of creating a broader picture of creditworthiness by including supplemental domain-specific financial, non-financial, historical, and real-time data sources. Such an integrated risk assessment allows lenders to stay ahead of the curve by quantifying all possible risks and examining how they may impact portfolio profitability. 

4. Regulatory-focused risk management

Regulators are intensifying their focus on the banking industry with third-party risk management (TPRM) receiving particularly heightened scrutiny. In the first half of 2024, global banking-related regulatory penalties went up by over 30%. This surge and the speed with which regulations change adds another layer of complexity to today’s corporate credit risk management. According to Reuters, most risk teams now treat compliance as a strategic priority, marking a significant shift from the previous check-the-box mentality. This trend is unlikely to shift anytime soon, given the growing prevalence of systemic risks in today's interconnected environment. To avoid falling under regulatory scrutiny, FIs now need to demonstrate that compliance is inbuilt into their risk management processes. Additional risk guardrails in the form of continuous monitoring and Early Warning Systems with real-time alert mechanisms will go a long way toward managing risks and regulatory compliance equivalently. 

Embrace the future with technology

A common thread across the above trends is the essential role of technology. A resilient risk monitoring system requires comprehensive and continuous monitoring of all corporate borrowers, not just the high-risk ones. This would be an impractical task to handle manually due to its time- and resource-intensive nature, particularly for companies managing corporate portfolios that number in the thousands. On the other hand, tech-led risk monitoring systems such as TRaiCE can streamline and automate such assessments with ease giving lenders a real-time understanding of risks and the ability to respond quickly to emerging threats.

With features such as automated and continuous risk monitoring, financial and non-financial (structured and unstructured) data quantification, social and news sentiment analysis, time-series-based daily risk scorecards, real-time red-flag alerts, and more, TRaiCE facilitates proactive portfolio monitoring. With 2025 threatening to be another year of increasing risk complexities, such tech adoption could decide how well business lenders do in this environment.

If you’re a commercial lender looking for a better way to navigate the challenges that lie ahead, why not give us a try? Contact us at info@traice.io or schedule a demo with us today! Our team would be happy to talk to you about implementing a pilot project at your organization or give you a free walkthrough of our platform.