Credit Analyst Career
Credit analysts facilitate credit risk managementCredit Risk ManagementCredit Risk Management is the process of mitigating the risk associated with each security in a portfolio. There are various ways to eliminate the potential risks posed by a market. by measuring the creditworthiness of the individual or a firm. Although the roles of a credit analyst are similar, however, variations occur depending on the type of entity they are working with. These are generally employed by banks, credit card companies, rating agencies, and Investment Companies.
Top 5 Credit Analyst Career Paths
The credit analyst career can be broadly divided into five categories:
- Consumer Credit Analyst Career
- Corporate Credit Analyst Career
- Financial Institution
- Credit Investment Analyst
#1 – Consumer Credit Analyst Career
The role of a consumer analyst is to examine the financial condition of an individual. He usually analyses the financial position of an individual before the bank/financial institution can grant him a loan. The analyst gathers key information such as past credit history, defaults, assets in the form of cash, investments or real estate, salary, and credit score like FICO.
#2 – Corporate Credit Analyst Career
A corporate credit analyst evaluates the credit riskCredit RiskCredit risk is the probability of a loss owing to the borrower's failure to repay the loan or meet debt obligations. It refers to the possibility that the lender may not receive the debt's principal and an interest component, resulting in interrupted cash flow and increased cost of collection. of a non-financial firm like industrial Companies, manufacturing enterprises, trading firms, and service providers. A corporate analyst is generally skilled in the specific industry and does research not only based on the financial condition of the firm but also based on its scale, geography, products, and sector it is involved in. Apart from knowledge of the specific sector, the analyst is well versed in accounting techniques.
#3 – Financial Institutions Analyst
A financial institution analyst assesses the creditworthiness of a financial intermediary. He analyses a financial institution related to bilateral or multiple transactions as counterparty risk. There are a majority of transactions between two banks and financial institutions like interbank funding without collateral, funding based on repos, borrowing of securities, dealing in Foreign exchange, transactions related to various derivative contracts such as credit default swaps, interest rate swapsInterest Rate SwapsAn interest rate swap is a deal between two parties on interest payments. The most common interest rate swap arrangement is when Party A agrees to make payments to Party B on a fixed interest rate, and Party B pays Party A on a floating interest rate., Fx swaps, etc. An analyst measures the counterparty risk and settlement risk of the counterparty before entering into the transaction or after a major event, which may expose his firm to potential loss.
#4 – Sovereign Credit Analysts
Countries across the world borrow funds from other nations, IMFIMFThe full form of IMF is International Monetary Fund. It is an organization of international recognition based in Washington DC comprising of 189 countries working towards international monetary cooperation with an objective of establishing economic stability across the globe., world bank, and other financial institutions. A sovereign analyst measures creditworthiness of the government of a Country. They are majorly employed with rating agencies that give a sovereign credit rating. They analyze a nation on the basis of tax compliance, geopolitical stability, tax collection, government spending, fiscal deficitFiscal DeficitFiscal deficit refers to the situation where the total budget expenditure exceeds the total budget receipts, excluding the government borrowings in a given fiscal year. It determines the amount the government needs to borrow for meeting its excess expenditure., amongst other factors.
#5 – Credit Investment Analyst
A credit investment analyst analyses the fixed income securities issued by various governments like US treasury bonds, corporate bondsCorporate BondsCorporate Bonds are fixed-income securities issued by companies that promise periodic fixed payments. These fixed payments are broken down into two parts: the coupon and the notional or face value. issued by corporate firms. The role is to analyze the security based on various risks like credit risk, interest rate riskInterest Rate RiskThe risk of an asset's value changing due to interest rate volatility is known as interest rate risk. It either makes the security non-competitive or makes it more valuable. of these securities so an institutional investor can make an informed decision before making an investment.
Broad Roles of Credit Analyst Careers
Above, we have discussed the broad careers of a credit analyst. This can be generally employed at the following entities:
- Banks and related financial institutions: Commercial and public banks that provide credit to public and corporate firms are the biggest employers of these analysts or measure the creditworthiness of the loan applicant.
- Institutional investors: Institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples. employ analysts to measure the credit risks involved with bonds and other credit securities.
- Rating agencies: This is work with rating agencies to give a credit rating to banks, financial institutions, corporations, and governments. There are three global credit rating agencies which employ such analysts – Moody’s Investor Services, Standard & Poor’s Rating Services, and Fitch Ratings.
- Government agencies: Government agencies like regulators, banks which act as credit providers, market participants and policymakers employ such analysts which work as a regulator to analyze the creditworthiness of state-run banks, insurance providers, and other institutions which can have a systematic effect on the market in general and the economy as the whole.
Educational Qualifications Required for Credit Analyst Career
- Most firms employing credit analyst requires the analyst to have a bachelor’s/masters degree in finance and accounting.
- The analyst should have a sound knowledge of finance subjects like accounting, ratio analysisRatio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements., economics, industry assessments, and financial statement analysis.
- Also, some firms prefer additional recognized certifications like Chartered Financial Analyst (CFA) or Financial Risk Manager (FRM).
Credit Analysts Skills
Apart from education qualifications, there are other skills required for a credit analyst Career:
- Diligent – It should be diligent and pay great attention to detail. An analyst should not miss any information or data, which could lead him to incorrect analysis.
- Quantitative analysis skills – It should have quantitative analyst skills and should be able to read and analyze numbers for good analysis.
- Written and Oral Communication Skills – Most part of credit analysts’ career requires communicating the analysis to the team, client, or publish a report. Thus, he should have written and oral communication skills and should be able to effectively communicate the decisions to a wide variety of people in verbal or written form.
- Industry Knowledge – As mentioned above, some analysts work in a specific industry and have sector-specific skills. Thus, for analysts looking to make a career in a particular sector, they should have a great understanding of the sector and should know all the particulars and details about it.
- Financial Analysis Skills – Such an analyst should be able to perform financial analysis of companies as its loan portfolios. They are also good at financial modeling in excel and credit analysis.Credit Analysis.Credit analysis is the process of drawing conclusions about an entity's creditworthiness based on available data (both quantitative and qualitative) and making recommendations about perceived needs and risks. Credit analysis also involves identifying, assessing, and mitigating risks associated with an entity's failure to meet financial commitments.
- Experience with Financial Software – Most of the work of this analysis is done on Microsoft Excel and other financial software. Thus, knowledge of these tools should be handy for the analyst.
Salary of a Credit Analyst
- While the salary of a credit analyst varies as per the industry, experience, knowledge. As per Indeed.com, a typical salary range in the US is $ 30,000 to $ 109,000, with a mean salary of around $ 58,000.
- As per glassdoor.com typical salary of a credit analyst in India is in the range of Rs 3,87,000 to Rs 12,38,000 with an average of Rs 7,02,000.
This analyst decides the interest rate at which a bank should provide the loan to an individual or a corporate. He measures the creditworthiness of the client or corporate. The credit analyst career may look lucrative, but it comes with a lot of responsibilities and requires hard work. It may, at times, not be easy to compile the huge amount of data and come up with a conclusion. Hence the job may become a bit stressful.
Credit Analyst Career Video
This has been a guide to Credit Analyst Careers Paths. Here we discuss Credit Analyst career opportunities, including corporate analyst, sovereign analyst, consumer analyst, financial institution analyst, and credit investment analyst. We also discuss the top skills required to become a credit analyst along with the average salaries of such jobs. You can learn more about Credit Analysis from the following articles –