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Finovate Debuts: Quantitative Credit Research Helps Lenders Understand Economic Risks


U.K.-based Quantitative Credit Research (QCR) focuses on risk management and advisory services. At FinovateEurope 2015 it launched Risk Aware, a tool to analyze, measure, and predict corporate credit default.

QCR created Risk Aware in response to the financial crisis when banks extended credit to businesses with good cash-flow potential. When the economic situation changed, losses were heavier than expected.

Risk Aware helps banks make better credit decisions by weighing micro and macro economic factors.


QCR, a risk-advisory firm:
    • has 4 partners and 5 employees
    • is headquartered in London with operations in central Europe
    • was founded June 2010

How Risk Aware works

1) Upload a company’s financial statements

Risk Aware uses the data to automatically calculate a cash-flow statement, saving analysts’ time.

It takes into account the macro-economic environment and the credit risk for all borrowers, as well as future micro-economic scenarios.

Risk Aware generates scores for 32 economic scenarios to offer a better understanding of what would happen in a downturn. The chart below shows how GDP growth volatility in three geographical regions is projected to change a company’s CAGR for 32 different scenarios.


2) View cash flow forecast
Risk Aware creates a 5-year, cash-flow forecast based on the company’s industry and historical cash flow statements. It contextualizes the information by taking macro-economic factors into account.


3) Analyze Risks
Risk Aware generates charts that depict risks involved with extending credit. It compares a company’s projected future cash-flow to its actual leverage. A company with lower leverage and less sensitivity to market changes can better weather a recession.

In the screenshot below, the chart on the left details the borrower’s debt in red, with the value of their future cash-flow in blue. The chart on the right displays the probability of default.


4) Understand effects of economic changes
The stress-test capability of the software works similar to a car-crash test. It evaluates credit by running it through different economic scenarios to determine what factors may break it, or cause default.

When Risk Aware “crashes” the credit under different scenarios, the results depict the probability of default. By adjusting factors, such as GDP growth, inflation, industry components, and utility sectors, lenders see exposure and risk levels in a possible economic downturn. The system captures all changes in the macro-economic environment and includes possible outcomes in its analysis.


In addition to the single-company analysis, QCR offers a view of the institution’s entire portfolio.

QCR debuted Risk Aware at FinovateEurope 2015 in London.