Have you ever considered the intricate balance between risk and reward in the financial world? My journey in credit risk management, particularly in managing the “Buy Now, Pay Later” (BNPL) portfolios across Indonesia, Malaysia, Philippines, Vietnam, and Brazil, has been a revelation in this regard. In my 2.5 years of experience, I’ve often paused to reflect on the true nature of my role. Is it just about managing risks, or is there more to it?

Risk and Reward
The common perception of a risk management department is that of a guardian against financial risks. However, it’s crucial to recognize that our role isn’t just about mitigating risks but also about maximizing long-term profits. This realization led me to think that perhaps our department should be more aptly named the Strategy or Policy Department, highlighting our focus on risk-adjusted reward.

The Unpredictability of Risk
In our industry, Application Scorecards and Behaviour Scorecards are standard tools used to predict default probabilities. However, the true challenge arises when the environment evolves faster than our models can adapt. The unpredictability of the market necessitates stress testing for various distress scenarios. In essence, the heart of risk management lies in managing the portfolio’s composition and structure, preparing us for unforeseen changes.

Short Term Risk
One critical lesson I’ve learned is the danger of a short-term perspective on risk. Economic cycles are often driven by human nature – our collective greed during good times leads to overexpansion, reducing our margin for error. It’s crucial to maintain a long-term view to avoid being caught off-guard when the tide turns.

My Role
Reflecting on my responsibilities, I see my role as twofold: developing strategies which dictate the action to take (say Approval and Limit) for various customer states (say credit scores) to maximize long-term rewards and adapting our portfolio composition to mitigate unexpected and delayed risks.

The intricacies of our day-to-day tasks are manifold. They range from the technicalities of quantifying long-term rewards to the tactical considerations of determining optimal actions. Additionally, a significant part of our strategic thinking goes into deciphering the ideal portfolio structure — a constant balancing act between risk and return. While these tasks are diverse and complex, they all orbit around our two central themes.

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