Cost of credit highlights risk management demands

The process of risk management and credit decisions is an increasingly complex one, as post-recession conditions continue to suggests widespread market uncertainty and financial turmoil. Businesses, particularly those in the banking and finance sectors, have been facing mounting pressures to boost their risk management policies in order to protect themselves, their shareholders and the wider market from excessive risk and losses. This week, the Bank of England reported that small businesses may see the cost of credit increase further this year, even as banks expect corporate credit demand to fall. Some banks are even beginning to assess credit risk according to industry sectors, as opposed to reviewing borrowers on an individual company basis. "Some lenders noted that uncertainty surrounding future growth prospects had led to differentiation between industries perceived to be more or less risky in the current economic environment," the bank said in a statement. Recent risk management flubs, such as the one that preceded UBS Bank's recent loss of more than $2 billion by a rogue trader, have heightened efforts to rein in excessive risk-taking.