Key Risk Indicator Categories for Bankers

Key risk indicators (KRIs) are a great way for businesses to keep track of issues and opportunities. There are many risk indicators and the onus on businesses is to pick the indicators of their choice and track them.

This process helps isolate the signal from the noise. Instead of looking at hundreds of indicators, management can choose the indicators that provide the insights needed to make executive decisions.

The best approach is to make the KRIs visible to stakeholders on executive dashboards to ensure that KRI insights are factored into executive decision-making.

Key Risk Indicator Categories

These key risk indicator categories represent, according to hundreds of bankers across the country, the biggest areas of concern for the banking industry right now. Instead of looking at key operational risk indicators, the indicators that bankers are prioritizing above the rest, are credit related indicators.

Here is how the bankers categorized the most important KRIs:

Credit KRIs

Credit-related KRIs top the list for bankers because these metrics are highly predictive in nature. Loan defaults have proven to be an extremely important indicator of how the economy will perform.

Bankers are looking at the rate of loan defaults by businesses and individuals in different industries to determine which industries are being hit the worst and which ones will be able to easily recover. The same is true for loan delinquencies and non-performing loans, both indicators that the businesses and other clients in the industry or area are underperforming.

Credit related KRIs help mid-sized banks understand how the pandemic is affecting the local business community in finer detail. It is critical to get this information for bankers because they have access to the data and can thus be the first ones to understand the financial standing and the future of the local economies.

Operational KRIs

Operational KRIs are the second most important set of KRIs being evaluated by risk and compliance professionals. Customer request volume is another important metric and highlights what areas of banking customers are now opting for, such as AI-driven banking processes, and which ones they are avoiding.

Beyond customer request volume, operational KRIs give bankers a forward-looking view of internal vulnerabilities that could lead to losses from process failures, system breakdowns, or human error. These indicators act as early warning signals, flagging problems before they escalate into costly incidents.

Market KRIs

While credit related KRIs are important to determine how the market will be in the future, market KRIs are important in shedding a light on the biggest problems in the market right now.

Bankers are looking closely at unemployment statistics across the country. High unemployment has a significant effect on the economy. Not only does high unemployment show that businesses are facing lower demand and thus reducing the workforce, unemployed people also cannot participate in the economy anymore which makes it harder for the economy to recover.

Key Risk Indicators for Compliance

Compliance key risk indicators help businesses unearth compliance framework weaknesses. Businesses can track not just the overall performance of the compliance department but also the efficiency of different compliance processes.

This visibility allows businesses to detect the least efficient processes and rework them. Compliance KRIs also help businesses put their performance in context by making it easier to compare their performance with their peers.

The data generated from compliance violations and corrective actions proves to be very valuable for management. This data can be fed to help the organization understand its risk exposure better.

Key Risk Indicators for Insurance

Insurance companies also make use of key risk indicators to ensure that their risks are within tolerance levels. Key risk indicators are especially critical in the insurance sector because the insurance sector principally deals with losses.

If there are lots of losses, the insurance company may have trouble meeting all its financial obligations. Keeping close track of KRIs ensures that this never happens. If the losses are above tolerance levels, key risk indicators provide a warning to insurance companies at an early stage, providing them the time required to get the funding they need.

KRIs are also useful in the insurance sector because they allow an organization to be aware of its overall leverage in real-time. There is no need to wait for reports that have been compiled manually; management can instead look at real-time data being generated through key risk indicators.

KRI Tracking Solutions

Some organizations record KRIs manually which enables them to keep track of performance and risks. However, the lack of real-time visibility into risks can mean that the business will not know about being in a disadvantaged position until it is too late. Most established insurance businesses, therefore, focus on enhancing their KRI tracking capabilities.

Keeping track of multiple categories of risk indicators in real-time can be impossible manually. That is why mid-sized banks are now opting for enterprise risk management software which can continuously monitor and manage risks.

How Predict360 Supports KRI Tracking

For banks looking to move beyond manual processes, the Predict360 Risk and Compliance Intelligence Platform offers a purpose-built KRI management engine that collects, monitors, and calculates KRIs dynamically. Key capabilities include:

• A flexible Formula Editor for creating calculated KRIs based on real-time data variables, with support for manual input, API, and SFTP imports
• Built-in integrations with FRED and FFIEC data to automatically flag risks that may not be consistent with external market changes
• Power BI and Tableau dashboard visualizations that identify risks operating outside of tolerance and predict emerging risks using AI
• An AI-powered companion, Ask Kaia, that enables users to explore KRI data and trends, create on-the-fly charts, and evaluate peer performance

By combining internal KRI data with external market indicators on a single platform, banks gain the real-time intelligence needed to move from reactive risk management to predictive risk analysisInterested in seeing what such a solution can do for your organization? Get in touch with our risk experts for a demo.