Managing complexity: Forward-looking strategies in credit risk modelling

Creativity in Risk Modelling

Working from the comfort of her plant-filled home with a nice view of Amsterdam, Ying Yao found the ideal balance between work and personal life. She works most of her week remotely and collaborates with her team in Utrecht about once per week. She started her career at Rabobank in 2017 as an intern, and her skills in quantitative finance helped her to become a Quantitative Risk Analyst focusing on pricing methodologies. Eventually, the position of Senior Credit Risk Modeller caught her attention due to its combination of problem-solving and creativity in a simulation-based model development.

Ying and her team develop risk models tailored to Rabobank’s project finance portfolio, focussing on the renewable energy market. Ying: “The bank sees great strategic importance in the energy transition, which makes my contributions even more fulfilling. Our financial models play an important role in offering clients better pricing options and to help in risk differentiation. While risk and finance may seem traditional, the modellers who work in renewable energy require a creative skill set.”

Ying explains why:, “Traditionally, risk models rely on historical data, analyzing factors like balance sheets, assets, collaterals, and portfolios. However, in the field of renewable energy, we apply a more forward-looking approach.” Ying explains the shift, “Instead of focusing on past performance, we predict future cash flows and assess the costs and benefits of a project.”

This forward-looking perspective introduces new uncertainties and unknowns. “Creating models based on thousands of possible scenarios demands a fresh outlook and the ability to think creatively. “Next to these new ways of thinking, it is also our responsibility to incorporate functional business requirements into these models, and meanwhile not overcomplicating the model too much and meeting external deadline. It is a challenge to make it all happen!”

Embrace Proactivity for Success

“At Rabobank, you have to be proactive”, as Ying explains. “It is the most important mentality you need to become your best self. When you adapt to a new environment, being proactive can help you know what you don’t know. By proactively discussing it with colleagues, you can learn how to make the unknown known. When you want to move forward in your career, you need to have a well-defined plan. Continuous self-improvement is a core value at Rabobank, both as a team and as individuals. With an open mind and the drive to learn, you naturally develop the skills you need for your career.”

Collaboration in Complex Problem-Solving

“The evolution of risk modelling to a future outlook gives new challenges for Credit Risk Modellers,” Ying continues. “You need to have advanced problem-solving skills. Also, you need to be curious, to constantly explore innovative solutions, to assist the business and our clients effectively. Furthermore, these models should be comprehensible to stakeholders. As a Medior or Senior Credit Risk Modeller, you must be able to translate your data-driven work to a comprehensible story for people outside your work of expertise.”

Within the field of risk modelling, collaboration is inevitable. Ying explains how the team dynamic works. “The consultants in our team contribute valuable business insights to the team, translate requirements from business stakeholders and help evaluate modelling results and process with regulatory requirements. Our junior modellers focus more on analyses, coding and methodology. They make sure all models and features are efficiently and accurately implemented. As a medior and senior modeller, you play a more significant role in communicating with our stakeholders. You are responsible for the outcome of the model, and you really need to convey clearly all the objectives, expectations, and deliverables to different stakeholders.”

Developing Professional Skills

Ying recently completed an agile training course. “With the adoption of Simplify@Scale, we’ve seen significant organizational changes. Embracing agility has become imperative. At Rabobank, you get a personal development budget, with which you can shape your own development for example by choice a training or course of your liking. I can enrol in courses and seamlessly integrate them into my work schedule. Additionally, we receive annual study hours dedicated to self-improvement, which you can use during working hours.” Can you also improve your technical skills? “Absolutely! You can enhance your Python skills, master PowerBI, delve into dashboarding, and even follow customized courses on data analytics. There’s an extensive selection of courses available, whether you’re a beginner or already on an intermediate level. The learning possibilities are endless!”

“At Rabobank, we foster a culture of exploration and knowledge-sharing. We constantly seek to stay ahead with the latest advancements in machine learning and AI. How can we embrace these cutting-edge technologies while adhering to our regulatory obligations? These are very fascinating and exciting topics to me. There is so much happening in our area of expertise. Even though we can build larger models with AI and enhanced computing power, it remains crucial to be able to articulate the outcomes of these models to our clients and stakeholders. It’s a responsibility I deeply understand and value.”