Who is a Credit Risk Analyst?
Understanding the role of a credit risk analyst requires and introduction to credit risk. Credit risk is the risk of default on a loan amount by the borrower. It is the probability of failure to repay the borrowed debt to the lender as per the agreement within the specified period. Credit risk causes cash flow disruptions for the lending party and can lead to severe losses.
The role of a credit risk analyst entails reviewing and assessing the financial history or credit history of the borrowing party to determine if they are eligible for the loan or not. The process of evaluating and assessing the credit risk is a complex one and doesn’t limit itself to a simple yes or no answer for the candidate.
The process of credit risk analysis involves applying a lot of financial techniques, making cash flow projections, predicting scenarios, etc. by the analysts. The analyst is required to calculate the probability of default and the extent of loss in case of default.
From a broader perspective, the role of a credit analyst has three aspects to it, the first one is gathering relevant information about the borrower followed by analyzing the information collected and finally making a decision based on the facts collected and analysis carried out.
How to Be a Credit Risk Analyst?
Credit risk analyst is one of the most desired professions in the banking and finance industry, the importance of the role has multiplied after the 2008 global financial crisis that led to a major recession globally. Banks and financial institutions are more focused to eradicate bad credits from their portfolios to ensure smooth cash flow to the business.
To get an entry-level position in the credit risk analyst field you need to have a bachelor’s degree in maths, statistics, economics, etc. The bottom line is you have to be good with crunching numbers; you need to be proficient with numbers. It requires you to have good analytical skills to make sense of the data gathered and come to a conclusion.
The role that incorporates evaluating consumer credits is easy to obtain and requires an associate degree with some relevant experience.
The business credit evaluation role requires you to have in-depth knowledge of finance and accounting principles. To have an added advantage you can also obtain the Credit Risk Certification by Risk Management Associations.
Remuneration for the role
A credit risk analyst is one of the most sought after career choices for people trying to make into the finance industry. It requires you to have a strong quantitative understanding and analytical know-how to perform the job. The role is very crucial to the smooth functioning of the banking and finance industry and a lot is riding on people performing in the capacity of the credit analyst. The remuneration is very lucrative and often reflects the hard work and commitment required to do the job.
As per 2019 reports, the average annual salary of a credit risk analyst in the United States was recorded approximately equal to $62,500. The salary varies greatly with your work experience, skills, and academic background. The average annual compensations for entry-level credit analyst in the US who have less than one year of work experience stands at $56,000. The salary estimates for people with considerable relevant work experience, usually more than 5 years, stands at $77,000.
The remunerations figures vary greatly with the city you are employed in and the organization that you work for. For the United States, the highest remuneration for the role of credit analysts was in New York City followed by Dallas and Chicago. The highest paying employer was Bank of America followed by Freddie Mac, JP Morgan, Goldman Sachs, City group.
