Swiss Bank to Expand Expert System
Swiss Bank Corp. plans to cut loan losses by bringing to its New York operation a credit evaluation system that uses artificial intelligence.
The system can evaluate corporate balance sheets as well as profit and loss statements in minutes and will probably be used worldwide. It is to be installed in New York this year.
The bank has had the system deployed in Switzerland for six months, although the rollout there is incomplete.
U.S. Banks Use Same Technique
About a dozen U.S. banks are already using artificial intelligence software to help evaluate commercial credits by letting computers employ humanlike reasoning processes.
These banks view artificial intelligence software as an automated way to ensure a consistent, top-drawer analysis by commercial credit specialists. Such software, also called expert systems, aims to put the computerized equivalent of a seasoned credit analyst at the elbow of a less experienced specialist.
Some banking companies, including Canadian Imperial Bank of Commerce and Security Pacific Corp., use an extensive AI system for credit and corporate evaluation developed by Syntelligence Corp. The Berkeley, Calif.-based software company filed for bankruptcy last year, and its assets were acquired by a consortium of companies, including Crowe Chizek & Co., South Bend, Ind.
Other banking companies, including First Fidelity Corp., use AI software to help in basic spreadsheet analysis of financial statements.
Reluctance Among Bankers
But many banks believe the evaluation of commercial credits is too complex to benefit from software aids. On top of that, these banks are reluctant to spend the money to equip lenders with the software and with personal computers.
Swiss Bank Corp. estimates it will save $1 million in loan losses in Switzerland alone this year. So far, eight of the bank's 20 offices in its home country are using the software. The system cost about $2.5 million to develop.
"Besides the fact that some time will be saved by using the system, the credit decision will be better than before," said Michael F. Wolf, a technology manager with the bank in Basel. "That was the main goal."
Swiss Bank's system, called Cubus, examines each element of a corporation's financials - for example, liquidity, stock price, and capital - against what a projected normal status is for that company. By itself, that type of comparison may be unique. Most baks compare a corporation's balance sheet against an industry or regional norm.
Initial Exam in 2 Minutes
The system, which runs on PS/2 personal computers from International Business Machines Corp., completes an initial examination in two minutes, said Mr. Wolf. That gives the credit analyst a first impression of the most significant aspects the analysis.
After that quick look, a credit specialist can work with the system to gain a more in-depth view of the company. In two or three hours, the analyst can construct a detailed picture of the company's financials. The analyst can add his own comments to the computer file, then pass it along to a manager for review.
Swiss Bank's credit analysis system was chosen as one of the best uses of AI last year by the American Association for Artificial Intelligence.
Swiss Bank was the only bank among 21 corporations recognized by the association this year. In the past, Manufacturers Hanover Corp. has received this award twice, although not for credit analysis - at least once more than any other bank, European or domestic.
Top Credit Expert Likes AI
So far, Mr. Wolf said, credit analysts have taken to the system. Even the company's top credit expert, whose knowledge helped form the system, uses it daily, said Mr. Wolf.
"He knows much more than the system," said Mr. Wolf. "But the system is always complete in its analysis - it is not blind to the negative aspects of a company." Mr. Wolf said the credit expert has revised his original impressions of a customer in several cases after consulting the system.
The impetus for the credit evaluation system at Swiss Bank came from technologists who were seeking a way to experiment with artificial intelligence systems. Originally, Swiss Bank worked with two other European banks to develop its AI system. The two other banks dropped out, however, and Swiss Bank has no plan to share its technology.
The Swiss bank now has six computer systems using AI software, Mr. Wolf said.