An indispensable tool to measure and manage your risks - RiskMeter
Until recently, company scoring and risk assessment models were utilized only
by financial institutions like banks, leasing and factoring companies. The
scoring tool has proven to be practical, objective and efficient over time.
All types of companies in need of assessing their customers, distributors or
third parties are now implementing their own scoring models and utilizing them
as part of their daily activities.
In this respect, the RiskMeter has been designed as a scoring and rating platform
which assesses the creditworthiness of a company by analyzing its financial
and non- financial data according to user defined parameters.
The RiskMeter
The RiskMeter was initially designed and introduced by a team of bankers,
finance academicians and IT experts. The model was first launched in 1988.
The first version of the model which had been successfully implemented in various
leading banks proved to be reliable and practical in the decision making process.
The model has then been improved over the years by the same team of experts
to fulfill the credit risk management requirements of all type of organizations,
whether financial or non-financial. The current version of the RiskMeter is
the result of accumulated years of experience in the scoring area, combining
both foreign and local expertise.
Tailor made scoring systems designed by Finar have been successfully implemented
in various Turkish banks and are being utilized on a regular basis. The RiskMeter
is a standardized, compact and user-friendly version of more sophisticated
systems used by banks. It is designated to suit the needs of medium-size financial
institutions like factoring and leasing companies as well as commercial/industrial
organizations which need to assess the credibility of their customers on a
periodic basis.
Data Input
The data input the RiskMeter requires can be grouped under two main headings.
Financial Data
Financial statements of the company namely the Balance Sheet + Income Statements.
Additional information such as capital increases, yearly depreciation and inventory
figures may also utilized during calculations. The scoring engine allows the
user to perform adjustments and reclassifications on financial statements provided
by the company. The calculations and scoring are therefore performed on adjusted
financials.
Non-Financial Data
A set of non-financial information is also required to conduct a proper assessment
of risk. Such information is also processed by the RiskMeter. A few examples
of this type of information are: “management quality”, “industry assessment”,
“location suitability”, “company’s experience in the sector”, “past payment
performance”, “owners’ personal credibility and reputation”, “risk factors”,
“technology adequacy” etc… For the existing customers, their behavior data
based on their past relationships with the company may also utilized. The list
is not limited and can be extended according to user’s needs.
Output
After entering the required data, the RiskMeter calculates different types
of outputs listed below.
- Adjusted Financial Statements
- Adjusted Financial Statements expressed in percentages
- Cash Flow Statement
- Financial Ratios
- Cash Flow Ratios
These outputs are then analyzed according to user’s pre-defined parameters.
Financial analysis includes a dynamic analysis (trends in selected figures
and ratios over the years) and a static analysis (comparison of company’s ratios
to reference values which can be user defined values or sector averages).
Non-financial analysis is performed by assessing the answers given to specific
questions and taking the weighted average of corresponding partial scores for
each question or group of questions.
Finally, the company’s scoring is calculated under the below format:
- Financial Scoring
- Non-Financial Scoring
- Overall Scoring (weighted average of the two previous scorings).
The company’s final score is than converted into a “Rating” defining the risk
group to which it belongs (i.e. AAA, AA, A, B, BB, BBB).
Parameter-driven platform
The strongest point of RiskMeter is that it is entirely a parametric platform.
No assessment criteria either financial or non-financial is preset and imposed
on the user. The risk assessment culture varies according to organizations.
Therefore, criteria utilized and their weight in calculations will also vary.
Certain organizations will prefer to work with a set of parameters where others
will prefer another set according to their own risk taking appetite. For this
reason, the RiskMeter has been designed to allow each different organization
to customize the platform according to their needs.
These parameters must be defined once and automatically used to calculate
a company’s risk score. After defining the parameters, the user will only need
to enter financial and non-financial data for companies to be rated.
Several sets of parameters (scorecards) can be defined according to user’s
need (i.e. scorecards by segments, by industries, by company types etc.). The
number of scorecards is not limited and the user can define as many scorecards
as needed.
Finar’s Consultancy
The RiskMeter combines both foreign and local expertise and has been designed
considering Turkey’s local conditions. Experience shows that scoring systems
designed for a certain environment will not work properly in another environment.
Finar RiskMeter team members have extensive credit experiences in the Turkish
market. Finar provides consultancy to companies in terms of using Riskmetre efficiency.
Finar’s extensive experience in the field of developing scorecards both on
statistical and expert basis does help the customers in guiding them to identify
the relevant non-financial and financial data and the parameters that best
measures and assesses the probable risks that the company may face. Finar holds
various sessions with team of company’s experts to facilitate the process of
developing the scorecard that reflects both the company’s risk assessment preferences
and Finar’s expertise.
Benefits
The RiskMeter provides an objective assessment tool for the user. The entire
risk assessment and credit decision process becomes people independent. The
assessment based on pre-defined parameters considerably reduces the risk related
to manual work and credit officer’s subjective assessments.
The RiskMeter brings a systematic approach to risk assessment and saves time
and effort. Assessment is speeded up for obvious cases and human effort can
be concentrated on “limit cases”.
The objective conclusions under “measurable” scores and ratings allow further
periodic reviews and trend comparisons.
The customer scoring database accumulated over time allows for further portfolio
risk analysis (risks by sectors or segments, by regions, by branches, by type
of customers, risk variation over periods, etc.). This can be utilized as a
decision making tool for actions and future strategies.
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