How can you identify and manage credit risks using TA in your organization's lending portfolio?

1 TA and credit risk

TA can help you evaluate the credit risk of your borrowers by providing insights into their financial performance, market conditions, and future prospects. For instance, you can use TA to monitor the price movements and liquidity of the assets or securities that serve as collateral for your loans in order to determine the adequacy and quality of your collateral. Additionally, you can track the credit ratings, spreads, and yields of the bonds or loans issued by your borrowers to assess their creditworthiness and default probability. Finally, TA can identify trends, cycles, and patterns of macroeconomic and industry factors that affect your borrowers' businesses so that you can anticipate changes in demand, supply, competition, and regulation that may impact their cash flows and solvency.

2 TA tools and techniques

To apply TA to your credit risk analysis, you need to use various tools and techniques that can help you visualize, measure, and interpret the financial data. Charts are graphical representations of the price, volume, and time of the financial data and can be used to display the data in different ways and identify patterns and trends. Indicators are mathematical calculations based on the price, volume, and time of the financial data which can be used to quantify and confirm the patterns and trends observed on the charts. Patterns are recurring shapes or formations on the charts that indicate the direction, strength, and duration of the price movements while signals are specific events or conditions on the charts or indicators that suggest a possible change or continuation of the price movements. All of these tools and techniques can be used to predict and trade the price movements as well as enter or exit a trade or adjust your risk exposure.

3 TA risk management

In order to utilize TA effectively for credit risk management, you should follow certain best practices and principles that can assist in avoiding or minimizing errors, biases, and losses. For instance, you should use multiple sources of data and information to verify and cross-check your TA findings. It is also important to consider multiple time frames and perspectives when analyzing and monitoring your borrowers' credit risk. Additionally, you should use multiple tools and techniques to confirm and validate your TA signals and patterns. Furthermore, you should use stop-loss and take-profit orders to limit your downside and lock in your upside. Finally, you should use risk-reward ratios and position sizing to balance your risk and return.

4 TA risk reporting and communication

To use TA successfully for credit risk reporting and communication, you need to present and explain your findings and recommendations clearly and convincingly to stakeholders, such as senior management, regulators, auditors, and investors. To do this effectively, use charts and visuals to illustrate and highlight your TA findings. Additionally, simple and concise language can help you avoid confusion and misunderstanding. Evidence and examples can also help demonstrate the accuracy of your findings. Lastly, use feedback and follow-up to monitor and evaluate your TA findings and recommendations. This will help you measure their effectiveness and adjust them as needed based on changing market conditions.