Exercise 1: Credit Portfolio Management Prompt Engineering

Objective:

Learn to craft effective prompts for comprehensive credit portfolio analysis and management.

Background:

Credit Risk Managers are responsible for overseeing credit portfolios and identifying concentration risks, performance trends, and optimization opportunities. A key challenge is developing a holistic view of portfolio risks and opportunities.

Exercise:

1. Scenario:

You need to conduct a comprehensive analysis of your credit portfolio to identify concentration risks, performance trends, and strategic recommendations.

2. Basic Prompt Example:

How should I analyze our credit portfolio?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add specific details about your credit portfolio
  • Include context about economic conditions
  • Request structured analysis methodology
  • Ask for strategic recommendations and action plans

4. Advanced Prompt Template:

I am a Credit Risk Manager at a [size] financial institution conducting a comprehensive analysis of our credit portfolio with these characteristics:

Portfolio composition:
- Total exposure: $[X] billion
- Loan types: [commercial, consumer, mortgage, etc.]
- Industry sectors: [distribution across industries]
- Geographic regions: [concentration by location]
- Risk rating distribution: [current risk profile]
- Maturity profile: [short-term, medium-term, long-term]
- Collateral types: [secured vs. unsecured, collateral distribution]

Performance metrics:
- Delinquency rates: [30/60/90+ day trends]
- Charge-off rates: [by segment, trends]
- Risk-adjusted returns: [ROE, RAROC by segment]
- Pricing adequacy: [yield vs. risk assessment]
- Growth trends: [by segment, year-over-year]
- Credit quality migration: [upgrade/downgrade trends]

Economic context:
- Current economic conditions: [growth, inflation, unemployment]
- Industry-specific trends: [challenges, opportunities]
- Interest rate environment: [current rates, forecasts]
- Regulatory focus areas: [examiner concerns, guidance]
- Competitive landscape: [peer strategies, market share]

Please help me develop a comprehensive credit portfolio analysis by:

1. Recommending a structured analytical approach that includes:
   - Concentration risk assessment methodology
   - Performance trend analysis framework
   - Vintage and cohort analysis techniques
   - Risk-adjusted return evaluation
   - Stress testing and scenario analysis
   - Comparative benchmarking approach
   - Early warning indicator development

2. For each analytical component, provide:
   - Specific metrics and calculations to use
   - Data requirements and preparation steps
   - Interpretation guidelines and thresholds
   - Visualization recommendations
   - Common pitfalls and limitations
   - Regulatory considerations

3. Based on typical portfolio patterns, suggest potential areas to investigate:
   - Concentration risks that often emerge
   - Performance trends that may indicate issues
   - Segments that typically underperform on risk-adjusted basis
   - Common pricing inadequacies
   - Overlooked correlation risks
   - Opportunities for portfolio optimization

4. Recommend a framework for developing strategic actions:
   - Portfolio rebalancing considerations
   - Growth and contraction strategies by segment
   - Pricing strategy adjustments
   - Risk appetite recalibration
   - Enhanced monitoring approaches
   - Reporting enhancements for management and board

Format your response as a comprehensive credit portfolio analysis framework that balances risk management with strategic business objectives.

5. Evaluation Criteria:

  • Does the prompt clearly describe the portfolio composition and performance metrics?
  • Does it provide context about economic conditions?
  • Does it request a structured analytical approach with specific components?
  • Does it ask for potential areas to investigate based on typical patterns?
  • Does it request a framework for developing strategic actions?

6. Practice Activity:

Create your own advanced prompt for credit portfolio analysis related to:

  1. A commercial real estate portfolio during market uncertainty
  2. A consumer lending portfolio with rising delinquencies
  3. A small business portfolio in a changing competitive landscape

Exercise 2: Credit Policy Development Prompt Engineering

Objective:

Develop skills to craft prompts that help create or enhance credit policies and underwriting standards.

Background:

Credit Risk Managers must establish and maintain effective credit policies. A key challenge is designing policies that balance risk control with business growth objectives and adapt to changing conditions.

Exercise:

1. Scenario:

You need to develop or revise a credit policy for a specific lending product or segment to address changing market conditions, performance trends, or regulatory expectations.

2. Basic Prompt Example:

What should be included in a commercial lending policy?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add specific details about the lending product/segment
  • Include context about business objectives and risk appetite
  • Request structured policy components
  • Ask for implementation and effectiveness measurement approaches

4. Advanced Prompt Template:

I am a Credit Risk Manager at a [size] financial institution developing/revising our credit policy for [specific lending product/segment] with these characteristics:

Product/segment details:
- Description: [commercial real estate, small business, consumer, etc.]
- Current portfolio size: $[X] in outstandings, [Y] accounts
- Target market: [customer segments, industries, geographies]
- Current performance: [delinquency, charge-offs, returns]
- Competitive landscape: [market position, key competitors]
- Distribution channels: [branch, digital, third-party]

Business and risk context:
- Strategic objectives: [growth targets, market share goals]
- Risk appetite: [target risk profile, concentration limits]
- Recent performance issues: [specific concerns or trends]
- Regulatory considerations: [examiner feedback, guidance]
- Economic outlook: [relevant forecasts, industry trends]
- Available data and analytics: [scoring models, portfolio insights]

Policy development objectives:
- Address specific performance issues or opportunities
- Align with updated risk appetite or strategy
- Incorporate new data or analytical capabilities
- Respond to regulatory expectations
- Streamline processes or improve efficiency
- Enhance consistency or controls

Please help me develop a comprehensive credit policy by:

1. Recommending a structured policy framework that includes:
   - Purpose and scope definition
   - Roles and responsibilities
   - Governance and approval authorities
   - Risk appetite alignment
   - Regulatory compliance considerations
   - Policy exception management
   - Periodic review requirements

2. For underwriting standards, suggest:
   - Eligibility criteria (customer, collateral, purpose)
   - Financial requirements and analysis approach
   - Risk rating/scoring methodology
   - Documentation standards
   - Verification requirements
   - Approval authorities and process
   - Pricing guidelines and structure

3. For portfolio management components, recommend:
   - Concentration limits and monitoring
   - Early warning indicators
   - Periodic review requirements
   - Problem loan management
   - Covenant setting and monitoring
   - Stress testing approach
   - Reporting requirements

4. Suggesting implementation approaches for:
   - Policy rollout and training
   - System and process updates
   - Grandfathering considerations
   - Monitoring and compliance verification
   - Effectiveness measurement
   - Feedback mechanisms and refinement

Format your response as a comprehensive credit policy framework that balances risk control with business objectives for our [specific lending product/segment].

5. Evaluation Criteria:

  • Does the prompt clearly describe the product/segment and business context?
  • Does it provide specific policy development objectives?
  • Does it request a structured policy framework with governance components?
  • Does it ask for specific underwriting standards and portfolio management approaches?
  • Does it consider implementation and effectiveness measurement?

6. Practice Activity:

Create your own advanced prompt for credit policy development related to:

  1. A new digital lending product
  2. A specialized industry lending program
  3. A policy for managing emerging credit risks

Exercise 3: Credit Strategy Prompt Engineering

Objective:

Learn to craft prompts that help develop effective credit strategies that balance growth, profitability, and risk.

Background:

Credit Risk Managers must develop strategies that guide credit activities across the organization. A key challenge is aligning credit strategy with overall business objectives while maintaining appropriate risk controls.

Exercise:

1. Scenario:

You need to develop a comprehensive credit strategy for a specific business line or product to achieve growth and profitability targets while managing risk appropriately.

2. Basic Prompt Example:

What should our credit strategy include?

3. Prompt Improvement Activity:

  • Identify the limitations of the basic prompt
  • Add specific details about the business line/product
  • Include context about market conditions and competition
  • Request structured strategy components
  • Ask for implementation and performance measurement approaches

4. Advanced Prompt Template:

I am a Credit Risk Manager at a [size] financial institution developing a comprehensive credit strategy for our [specific business line/product] with these characteristics:

Business context:
- Description: [commercial, retail, specialty finance, etc.]
- Current portfolio: $[X] in outstandings, [Y] accounts
- Growth targets: [specific objectives, timeframe]
- Profitability goals: [ROE, ROA targets]
- Risk parameters: [loss limits, capital allocation]
- Current challenges: [specific issues or constraints]

Market landscape:
- Competitive environment: [key competitors, market share]
- Customer segments: [target markets, underserved opportunities]
- Economic outlook: [relevant forecasts, industry trends]
- Regulatory environment: [constraints, opportunities]
- Technology trends: [digital capabilities, automation]
- Distribution channels: [branch, online, partnerships]

Strategic considerations:
- Risk appetite alignment: [board-approved parameters]
- Competitive differentiation opportunities
- Resource constraints: [capital, funding, operational]
- Existing capabilities: [systems, analytics, expertise]
- Timeline: [implementation horizon, phasing]
- Change management considerations

Please help me develop a comprehensive credit strategy by:

1. Recommending a structured strategic framework that includes:
   - Vision and objectives alignment
   - Market positioning and value proposition
   - Target customer segments and profiles
   - Product and offering strategy
   - Risk-return optimization approach
   - Competitive differentiation elements
   - Implementation roadmap

2. For growth and profitability components, suggest:
   - Customer acquisition approaches
   - Cross-sell and deepening strategies
   - Retention and attrition management
   - Pricing optimization methodology
   - Fee income opportunities
   - Efficiency and cost management
   - Capital and funding optimization

3. For risk management components, recommend:
   - Underwriting strategy and standards
   - Portfolio construction approach
   - Concentration management
   - Early warning and monitoring systems
   - Problem loan management approach
   - Reserve and capital management
   - Stress testing and scenario planning

4. Suggesting implementation approaches for:
   - Phased rollout planning
   - Required capabilities and resources
   - Technology and analytics enablement
   - Performance metrics and tracking
   - Governance and oversight
   - Feedback loops and adjustment mechanisms

Format your response as a comprehensive credit strategy that balances growth and profitability objectives with appropriate risk management for our [specific business line/product].

5. Evaluation Criteria:

  • Does the prompt clearly describe the business context and market landscape?
  • Does it provide specific strategic considerations?
  • Does it request a structured strategic framework with clear components?
  • Does it ask for specific growth, profitability, and risk management approaches?
  • Does it consider implementation and performance measurement?

6. Practice Activity:

Create your own advanced prompt for credit strategy development related to:

  1. A strategy for entering a new market segment
  2. A turnaround strategy for an underperforming portfolio
  3. A digital transformation strategy for credit operations