77% of companies with “below industry average news sentiment” witnessed a deterioration in financials
FiND Credit Risk Early Warning System (EWS) captures company related red-flags through analysis of millions of data points and news. Unstructured data sets such as “news” are an important piece of information that can be consumed in the risk assessment of corporate borrowers.
Our hypothesis is that the news sentiment acts as a lead indicator to the deterioration in the company’s financial performance. To test this hypothesis, we back-tested news data of 2,250+ companies for the year 2016 on the following business rule:
Company’s news sentiment average stays below the industry average for all 4-quarters in CY16
We identified 924 such companies. Then, we checked if there is any deterioration in the quarterly financial performance (measured by the score of financial business rules) for these companies in the next 4-quarters (CY17).
For 77% of companies (714/924), we found that A. The number of red flags on quarterly financials outpaced the number of green flags in CY17 and B. The net score of red flags was lower than minus 10 for all 4-quarters in CY17.
We have highlighted 3 such companies whose news sentiment remained below the industry average for all 4-quarters in CY16.
We have also listed quarterly result charts for these 3 companies which highlight a deterioration in their financial performance in the subsequent quarters.
Publically available data from Employees’ Provident Fund Organization (EPFO) is an important piece of information that can be consumed in risk assessment of corporate borrowers. In our view, deep-dive analytics on EPFO data can offer unique insights into the company’s functioning.
Through analysis of EPFO data, the banks can find out whether the companies in their loan portfolio are depositing employees’ provident fund (PF) on time or not; and whether there is any significant drop in the PF amount deposited by the company. At the same time, lenders can also identify companies which are downsizing the workforce.
FiND Credit Risk Early Warning System (EWS) consists of 25+ business rules that analyze the EPFO data for the companies every month. One of the key business rules is a delay in PF payment for a given month. In our view, a delay in PF payment may imply liquidity crunch for the company and hence it is a red flag for the banks.
Our hypothesis is that red flags related to PF payment can act as a leading indicator to the deterioration in the company’s financial performance. To test this hypothesis, we back-tested our engine on EPFO data for three months (Jan-17, Feb-17, and Mar-17) on the below-mentioned business rule:
Delay in monthly payment of PF by more than 10 days for more than 50 employees
From our EPFO data universe of 1,250+ companies, FiND EWS identified 35 companies who have delayed PF payment for all 3 months.
Then, we checked if there is any deterioration in the financial performance (captured by FiND Financial Risk score) for these companies post-March 2017 quarter.
We found that: 86% of companies (30/35) witnessed a deterioration in Financial Risk score in the subsequent quarters.
We highlight 10 such companies below:
[Image 1: Financial Risk Score for 10 Companies with PF red flags] Read the rest of this entry »
The bad loans of Indian banks has touched a record high of Rs 9.5 trillion at the end of June 2017. The banks witnessed an increase of 4.5% in bad loans from January to June 2017, according to RBI data. The recent surge in bad loans suggests that there is no end to the NPA crisis anytime soon.
Heckyl believes there is a lot more that can be done in the credit risk space in the financial institutions. It is no secret anymore that be it the banks or the non-banking financial companies (NBFCs), the wrath of the non-performing assets has spared none. Although, these financial institutions have their existing risk models in place, the important question remains, that is, are they able to comprehensively highlight the impending risk ahead of time?
Heckyl has developed innovative Credit Risk Early Warning System (EWS) that collects, organizes and performs deep-dive analytics on structured and unstructured data sets to offer 360-degree view on lender’s loan portfolio. Our EWS application identifies the pre-default behavior of corporate borrowers to help lenders pick up warning signals ahead of time.
Heckyl EWS spots several red-flags on Sintex Industries Read the rest of this entry »
Were you able to spot these young companies engaged in the manufacturing of food products?
Could these companies be the prospective targets for your Relationship Managers?
Heckyl Business Intelligence application spotted 700+ early stage companies who have recently ventured into the manufacturing of food products.
Heckyl BI engine identifies companies, who at some point in time, may require funds to finance their various business operations.
Newly incorporated companies engaged in the capital-intensive manufacturing business could be the potential targets for offering working capital or long-term loans.
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