A credit risk analyst reviews a potential borrower's financial history and determine how risky it is to lend money to that person or company. The fallout from the 2008 financial crisis has increased the perceived value of having skilled credit risk analysts on staff. After all, the crisis largely resulted from banks and lenders making loans to those who were in no position to pay them back on schedule. With companies now being much more fastidious about whom they lend money to, they rely on credit risk analysts to help them make credit decisions with the highest degree of accuracy.
The scope of a credit risk analyst's job runs a broad gamut. Tiny mom-and-pop lenders all the way up to huge multinational banks employ credit risk analysts. Third-party credit rating agencies that are responsible for making public declarations about the risk levels of corporate and municipal bonds also use credit risk analysts to make these determinations. Investment banks, hedge funds and private equity firms employ credit risk analysts for the same reason: to analyze and grade bonds on their default risk. Having skilled and ethical credit risk analysts in such roles is more important than ever. Another major cause of the 2008 financial crisis was risky bonds backed by subprime mortgages. Loans made to people with questionable ability to repay, were rated much higher than they should have been, which gave investors on the secondary market false confidence. The following businesses are common places for a credit risk analyst to launch a career.
Investment banks have long been popular career-launching pads for ambitious young professionals. Landing a job at a place such as Goldman Sachs confers instant cachet and the ability to make well into the six figures during year one. Becoming a credit risk analyst is one way to get a foot in the door at a Wall Street investment bank. A big role for a credit risk analyst at an investment bank is to perform the job that was so sorely neglected during the subprime crisis: determining the default risk of various bonds.
With a bond investment, returns correlate positively with risk. The rating agencies confer AAA ratings to bonds with negligible default risk, all the way down to junk status for bonds with high risk of default. Because junk bonds are so risky, they pay much higher interest rates than AAA bonds; otherwise, investors would not touch them. Investment banks love to locate high-yield bonds they feel confident are not going to default. The job of the credit risk analyst is to conduct his own analysis, apart from the rating agencies, to identify bonds that are potentially safer than their yields might suggest.
Credit risk analysts are in high demand at the actual rating agencies, such as Moody's and Standard and Poor's, that bestow the all-important ratings investors use as shortcuts to determining risk levels. Rating agency credit risk analysts parse the financial data of entities that raise money by issuing bonds to the public. These include companies, municipalities, state governments and even entire countries.
Working for a rating agency is not as lucrative as working for an investment bank, but for job security, it cannot be beaten. While investment banks vacillate with the market and the broader economy, experiencing good times and bad times, the demand for rating agency services is mostly impervious to economic ups and downs. As long as bonds are being issued, companies such as Moody's are rating them.
Local Banks and Lenders
A credit risk analyst does not have to move to New York and work for a huge corporation to have a successful career. The local bank in the small town square lends money to people daily, and therefore, it needs skilled people to decide which loans should be made and which should not. These credit risk analysts spend their days reviewing the financial histories of individual borrowers rather than big companies. They look at a customer's past payment history, income, debts, job stability and other factors to help their employers make credit decisions.
Credit risk analysts work everywhere, from credit unions to regional banks to auto finance companies. There is a niche out there for just about anyone who wants to work in the field but prefers to avoid the frenetic Wall Street scene.
Credit risk analysts should be analytic, logical and at least above average at math. Depending on the position, high-level math may not be necessary, but this is a numbers-driven job, which means those who get intimidated or confused easily working with numbers tend to struggle.
An analyst heading to Wall Street to launch a career needs a tenacious work ethic and the ability to work long hours. While the big investment banks, most notably Goldman Sachs, are taking steps to improve work/life balance in an effort to boost their images after the financial crisis (some new employees are even encouraged to take weekends off), it is beyond naive to expect a 40-hour workweek at an investment bank. Typical hours for first-year employees, including credit analysts, still run well north of 60 per week.
Most credit risk analysts in the current job market have at least a bachelor's degree. The most common majors are economics, finance, accounting and statistics. An MBA, while not a necessity, always helps a candidate gain an edge over his competition.
As of 2015, the median annual salary for a credit risk analyst is $59,354. A new analyst's first-year income could range from $36,000 to more than $120,000, largely dependent on the type of company for which he goes to work. While most of the larger salaries are earned at the big banks, credit risk analysts away from Wall Street still make more money than the average American worker.
Demand for credit risk analysts ebbed for a period between 2004 and 2010, but the job outlook has improved in the wake of economic recovery. The field is expected to grow by over 4% per year, at least through 2018.