Why AI is the answer for investors and banks ahead of the surge of non-performing loans

When a borrower defaults on a loan during a certain period, it can be classified as a non-performing loan (NPL).

Many market experts predict an increase in NPLs as a consequence of the Covid-19 pandemic and the resulting economic instability. Artificial intelligence (AI) may be the best technology for financial institutions to help them navigate the forthcoming surge.

The Covid-19 economic crisis is likely to cause a proliferation of loan defaults across the globe. Banks and lenders will need to offload some of this debt in the form of NPLs, which can be an attractive, diversifying asset class for certain investors.

European banks were already dealing with many NPLs pre-Covid-19, and are now likely to bear a significant increase in loan defaults.

At a time when teams are virtual and onsite due diligence is hampered, how can NPL investors create a competitive advantage? This is where AI can make a significant difference.

Banks and time-strapped investors alike are in need of tools that yield new levels of accuracy, efficiency and data-driven decision making for the NPL deal making process. Many debt capital market professionals are finding the answers in AI-assisted solutions.

While macro factors such as government stimulus packages, monetary policy and banking supervision enacted by central banks, and a second wave of Covid-19 will impact the timing of that impending NPL wave, companies will be expected to leverage the debt markets to grow and/or stay afloat.

The NPL industry is notorious for the poor quality of data available for valuations. It's also characterised as having significant barriers to entry. However, AI is not science fiction with ?robots taking over the world? but rather machines or computer programs that mimic human intelligence to identify complex patterns, analyse them, ?learn? from them and make smart suggestions.

AI can also aid investors by implementing a standard scope, data definitions and templates, making the evaluation process more efficient and better informed.

In our new white paper, Artificial Intelligence: 4 Key Benefits for Non-Performing Loan Investors, we demonstrate how AI combined with secure cloud storage platforms is making an impact in this space through four key benefits:

  1. Intelligent automation
    By utilising AI in the right way, banks and investors can maximise efficiencies through intelligent automation.
  2. Extract critical, quality data
    AI allows business to harness the full power of their data.
  3. Faster decision-making
    Predictive forecasting powered by AI will yield far more accurate views for banks and investors.
  4. Streamline due diligence
    AI can help due diligence processes to close the bid:ask gap.
     

 

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