Credit organizations with the highest AI impact introduce more than double the workforce and workflow changes, study finds

New research from the Global Institute of Credit Professionals reveals why organizations with similar levels of AI adoption are achieving very different business outcomes.

Organizations are rapidly embedding artificial intelligence into credit processes, but new research suggests that simply using more AI does not automatically translate into better business outcomes.

Our latest report, ‘Credit in the Age of AI’, finds that organizations with similar levels of AI adoption can achieve markedly different results, with success determined less by the technology itself and more by the organizational capability needed to embed AI effectively across its people, processes and operating models.

The findings show that AI adoption remains relatively shallow across much of the industry. 56% of organizations currently use AI in less than 25% of their credit processes, including 14% that are not using AI at all. Adoption is currently concentrated in lower-risk activities such as document drafting, financial analysis and market research, while AI is delivering its greatest reported impact in activities closest to credit decision-making, including risk assessment and credit scoring.

Despite relatively modest levels of adoption, organizations are already seeing measurable benefits. Nearly half (47%) of organizations using AI across just 25–49% of their workflows report high organizational impact, rising to 66% among those using AI across 50–75% of workflows. The findings suggest that how organizations implement AI is just as important as how much AI they use.

The report identifies governance as one of the clearest differentiators between organizations achieving high AI-enabled impact and those struggling to realize value. Sixty-seven per cent of organizations with eight or nine AI governance measures in place reported high AI-enabled impact, compared with just 23% of organizations with zero or only one governance measure in place. Similarly, 50% of organizations reporting high AI-enabled impact have formal governance frameworks in place, compared with only 18% of those where AI-enabled impact remains minimal or mixed.

Organizations reporting high AI-enabled impact also introduced more than twice as many workforce and workflow changes, averaging 2.58 organizational changes compared with 1.22 among organizations reporting lower AI impact, reinforcing that successful AI implementation requires organizational transformation as well as technology.

However, the research also reveals a significant disconnect between where organizations recognize challenges and where they are investing. Sixty-five per cent of respondents identified leadership and governance factors as the biggest barrier to successful AI adoption, yet only 38% plan to prioritize investment in this area.

The report also highlights what it describes as the “Two Waves of AI Value.” The first wave has focused on productivity gains from lower-risk applications such as drafting, summarization and research. The second wave is now emerging as organizations begin applying AI to underwriting, credit assessment and risk scoring. Overall, across organizations expecting disruptions from generative AI, autonomous decision-making or real-time monitoring, 79% are not yet deploying AI in the corresponding workflows, suggesting ambition continues to outpace organizational readiness.

Andreas Karaiskos, Executive Director of the Global Institute of Credit Professionals, said: “The conversation around AI has largely focused on adoption, but our research shows that adoption alone is not creating competitive advantage. Organizations with similar levels of AI activity are achieving very different outcomes because success depends on much more than technology. The organizations seeing the greatest impact are investing in governance, workforce capability and operating models that enable AI to be embedded effectively into day-to-day credit decision-making. As AI becomes an established part of the credit lifecycle, competitive advantage will increasingly depend on how well organizations combine technology with skilled professionals, sound judgment and effective execution.”

The report concludes that as AI becomes embedded across the credit lifecycle, competitive advantage will increasingly depend on an organization’s ability to embed AI across its people, processes and decision-making. Organizations that invest in governance, leadership, workforce capability and operational change alongside technology will be best placed to translate AI adoption into meaningful long-term business value.

Download the full ‘Credit in the Age of AI’ report.

AI hype vs reality

The report ‘Technology: AI hype versus the reality’ from CreditSights provides a comprehensive analysis of the current landscape of artificial intelligence, focusing on the gap between expectations and actual performance. You can read the full report here. Note that a CreditSights account may be required to access the report.

For credit analysts, understanding the financial and strategic implications of AI investments is crucial. Analyzing a company’s AI strategy can provide insights into its long-term viability and growth prospects. Credit analysts should assess the financial health, strategic focus, and potential risks associated with AI investments, including technological obsolescence and regulatory challenges. By doing so, analysts can better evaluate the creditworthiness and future stability of companies navigating the AI landscape.

Key findings:

  • Innovation and adoption of generative AI is high. However, the revenue opportunity does not seem to justify the near-term investments. Issues around AI to be addressed include hallucinations, guardrails to protect the user experience, copyright infringements, security and privacy concerns. Cost is another aspect – although that is expected to come down over time driven by improved GPU efficiency and availability, amongst other factors.
  • In the race to beat the competition, budgets have opened up indiscriminate spending towards gen-AI. For most companies, it will be hard to justify the ROIC, not least for those whose internal development efforts will not lead to mass adoption.
  • Tech companies are racing to have the most advanced LLMs (large language models), whilst other companies are racing to adopt AI to stay ahead of the competition – or through fear of falling behind the competition. Capex as a percentage of revenue was more than 20% for Microsoft and just shy of 20% for Meta in 1Q24, with the expectation for capex in the top hyperscalers (Amazon, Microsoft, Google and Meta) to surpass $200bn in 2024.
  • AI hype has translated in higher market caps for the big tech companies, since early 2023. Earnings growth (some driven by gen-AI) and multiple expansion has driven this, along with earnings growth from other, non-AI related factors. Nvidia, where earnings growth has been driven particularly by gen-AI, now has a market cap nearly as large as Microsoft and Apple.
  • Enterprise software has had limited success with monetization associated with gen-AI. Long term the preferred approach appears to be combining proprietary data with third party LLMs in order to create unique and differentiated services, although the article authors do not expect a step-function change in growth that justifies the infrastructure buildouts taking place in 2024.

If you are interested in learning more about AI, you may like the following webinars:

Staying competitive with the latest AI applications

Generative AI: Credit implications for the tech sector

Building a career in the age of AI

2024 Primer on the U.S. Leveraged Finance Market

The “2024 Primer on the U.S. Leveraged Finance Market”, published by Fitch Ratings, offers a deep-dive analysis into the complexities and nuances of the U.S. leveraged finance market.

This comprehensive overview focuses on key factors influencing risk and opportunity for market participants such as corporate bond and loan underwriters and investors, CLO investors, corporate debt issues, private equity sponsors and regulators.

The primer includes a detailed overview of leveraged loans – what they are, what are the different types, their characteristics and their components. The document is a valuable resource for navigating the complexities of the levfin arena, providing a comprehensive understanding of the current state and forward look of the market.

To read the full document follow this link. Please note that a Fitch Ratings account may be necessary to access the report.

Key Findings

  • Market dynamics: The report reveals a deteriorating outlook for the leveraged finance sector in 2024, attributed to restricted access to capital markets and higher for longer interest rates. Highly leveraged issuers are pinpointed as particularly vulnerable under these conditions. However there are signs of improvement in high yield issuance volume.
  • Default rates: The forecast is for an uptick in default rates across high yield (HY) and leveraged loan (LL) markets, underpinned by the dual pressures of escalated interest obligations and stunted economic growth.
  • Default rates: An anticipated rise in default rates for high yield and leveraged loans is forecasted, driven by an increased interest expense burden coupled with a projected economic slowdown. Default rates for leveraged loans are expected to exceed historical averages.
  • Sectoral analysis: A granular breakdown pinpoints healthcare, telecoms, leisure and entertainment, broadcasting and media, retail, and technology sectors as critical arenas contributing significantly to anticipated default volumes.
  • Market activity: A resurgence in refinancing and repricing activity marks a proactive response to impending maturity walls, while private credit markets have shown positive growth for issuers unable to access the public credit markets. Meanwhile, CLO issuance activity has remained steady despite market challenges.
  • Private credit and private equity: The report delves into the growth of direct lending in light of the heightened banking regulations in the aftermath of the financial crisis. In addition, there is commentary on the US private equity market, where fundraising volumes remain flat as market activity contracts due to inflationary pressures and increases in interest rates.