Trade credit grew by almost 4,400 million dollars in the last year

The portfolio of loans to companies in the Commerce and Repairs sector has grown by 6.2% in the last financial year, thus drawing from the report evolution of credit to productive activities in Spain by sectors of activity, published by the consultant specialized in credit risk management, GFI Group.

Thus, the total portfolio went from 70.6 billion USD in 2016 to something more than 75 billion at the end of 2017. This is the highest growth among all the business subsectors of the Services sector, both as a percentage and in terms of total USD

Trade credit represents 13% of the total business credit

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Trade credit represents 13% of the total business credit, which in the last year was approximately 590,000 million USD.

Despite taking three years with a positive variation rate, the growth of previous years was only a few tenths. 2017 is the first with a truly remarkable ascent.

In fact, the total credit to this sector has not yet reached the pre-crisis levels, when it exceeded 85,000 million USD. If we consider the evolution in the last decade, the balance is negative, since, since 2007, the trade credit portfolio has fallen by 9%.

Even so, Commerce is the sector that has previously shown signs of improvement. Its variation rate shows a slight growth since 2015. However, except for Agriculture, which also began its comeback in 2015-, credit to other productive activities has not registered positive growth until 2017. It is the case of Transportation and Hospitality.

Graph 1 Rate of variation of credit to companies by activity sectors (2017). Source: Own elaboration based on data from the Bank of Spain

Regarding the delinquency rate, the loan portfolio to companies in the Commerce and Repairs sector still presented figures slightly above 10% in the last year (10.2%). However, the trajectory of this indicator is decreasing since in December 2014 it reached a maximum of 15.3%.

The importance of data in credit risk management

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Sean Cole, economist and commercial director of the GFI Group, affirms that the evolution of the macroeconomics is the main driver of the improvement or worsening of the quality of the risk of the portfolios of the financial entities.

At the present time, regulations such as GFI cause entities to be very concerned about the quality of their portfolios, depending on the capital requirements, so the monitoring tools are highly relevant. Anticipating as much as possible to potential deterioration situations that end up impacting your level of provisions and capital is a priority.

The sooner a worsening of the situation of the debtors can be foreseen, the more time there will be to be able to adopt measures to mitigate the assumed risk.

It is also critical to be able to simulate a variety of macroeconomic scenarios to predict the evolution of portfolios in each of them. This is what we call stress testing.

On the other hand, says Cole, we are now experiencing a boom in the application of new modeling techniques in risk management.

Credit risk management models

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Entities are implementing artificial intelligence and in particular machine learning techniques in their credit risk management models, because in this way, their level of prediction is up to 50% m It is high, thus multiplying the effectiveness and efficiency of the predictive capacity of the models. And that should be the way forward to carry out better risk control, both in transactions with individuals and companies.

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