Banking : Credit Limit Intelligence

Credit limits are a critical decision-making aspect in the loan business. They influence the competitiveness, profitability, and risk profile of a business. If the limit offered is lower than the applicant’s expectations, they might choose a competitor. Conversely, a high limit can lead to significant risks. While credit limits are closely tied to profitability, there is no definitive answer, making it essential for business units to strategically set and manage these decisions.

It varies by loan products, such as credit cards, overdraft accounts, and unsecured or secured loans. Once the initial credit limit is assigned at the time of enrollment, it can be adjusted-increased, maintained, or decreased-based on borrowers credit behaviour. Therefore, credit limits are closely related to credit evaluations. Risk managers need to identify candidates for credit limit adjustments and decide how much to adjust the limit for each. 

There are 4 major challenges for credit limit optimization

1) Identifying candidates for each adjustment based on potential risks.

2) Increasing limits by identifying actual credit usage increases group. 

3) Decreasing limits considering potential risks caused by the limit decrease.

4) Simulating profits through adjustment strategies.

DEIN Station’s Credit Limit Intelligence enables loan providers to realize additional profits while preventing potential losses. Risk managers can clearly identify candidate segments for credit limit adjustments. They can manually analyze and assess their hypotheses or leverage AI to automatically discover and suggest meaningful segments. By simulating credit limit strategies in advance, they can make optimal, balanced decisions among contradictory KPIs like profits and losses. Risk managers continuously monitor and adjust these decisions during actual business operations, and Credit Limit Intelligence consistently learns from these scenarios and actions, building a resilient and adaptive intelligence process.

Business KPIs

•  Credit Usage

•  Credit Usage Growth

•  Default Rate

•  Default Amount

•  Total Loan Amount

•  Unused Credit Line

Challenges

•  Evaluating default or delinquency risks using behaviour scoring

•  Identifying segments likely to increase credit usage

•  Simulating credit limit strategies for micro-segments

•  Optimizing credit limits considering profit and risk

•  Monitoring and Adjusting credit limit strategies

Decision subjects

•  Increase or Decrease Credit Limit