The world is complex and the future uncertain. What does that mean for the existing models on which we base our expectations? For Prof. Lex Hoogduin, professor of complexity and uncertainty in financial markets and financial institutions and Chairman of LCH Clearnet, it was a reason to set up the Global Complexity Network (GloComNet), an open platform focusing on how to deal effectively with ‘complexity and uncertainty’. Zanders joined last year and together we developed the Framework for Acting under Uncertainty and Complexity (FAUC).
According to Intrum Justitia, bad debts of more than € 350 billion were written off in Europe in 2013, which is around three percent of all outstanding transactions. Internal research into Dutch companies with debtor portfolios in excess of € 250 million reveals that some companies have had to write off up to 10 percent of their net result on their customers. According to some estimates, around 25 percent of companies actually go bankrupt due to bad debt losses alone. It is with good reason that many annual reports state that credit risks are often the biggest threat to business continuity. In this article, we explain our approach to credit risk management for corporates.