Client Analysis and Risk Modeling in Banking

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Senior Data Scientist at Robofinance

How is data analysis used in the banking sector and why do credit institutions offer worse conditions to "risky" clients? Senior Data Scientist at Robofinance Alexey Khoroshilov tells and shows how risk models are built in banking.

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Banks use data analytics to segment their customer base based on financial behavior and income level. Roughly speaking, data analytics helps to gain information about a bank’s customer base, determine which groups of customers may have similar needs and preferences, and improve their products and services based on this data.

Risk models, in particular, analyze data on benin whatsapp phone number credit history, income, and other factors necessary to predict default events, losses given default, credit conversion, etc.

Thus, banks are improving their strategy of interaction with clients. Banks reward more reliable clients and offer less loyal conditions to riskier ones, making decisions based on accumulated data.

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Who uses banking services?
Banks provide services to both individuals and legal entities. In some cases, bank clients may also include government agencies or administrative units representing the interests of the state.

What are the banking risks?
Banking risks are any potential losses that may arise as a result of adverse events.

Credit risks. Borrower's insolvency, banking risk - subsequent losses for the bank. Allowed due to insufficient assessment of clients' solvency or changes in economic conditions.
Market risks. Associated with changes in financial markets. There are interest rate, currency and stock market risks. For example, interest rate risk arises from fluctuations in interest rates, which can affect the profitability of assets.
Non-financial risks. Operational risks, legal risks and risks associated with the loss of business reputation. Operational risks, for example, may be due to poorly established internal processes or the human factor.
Liquidity risk. The inability of a bank to meet its obligations on time due to a lack of liquid assets.
Main types of banking risks