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China is adopting cutting-edge technologies, such as big data, blockchain and artificial intelligence (AI), to improve its structured finance market, Moody’s said in a new report.
As per the report, the adoption of blockchain technology is still at an early stage in the country. The technology has been implemented in areas such as residential mortgage-backed securities (RMBS), supply chain financing and trade financing, where it is helping to improve operational efficiency and data transparency.
Big data, on the other hand, is being widely used by internet-based lenders to identify and assess prospective borrowers, who may otherwise have limited credit profiles.
However, Moody’s said that while these technologies bring several advantages, they also introduce new risks. It said that blockchain implementation can expose securitization transactions to technology-related risks, such as those stemming from cyber-attacks or network issues.
"Financial institutions are also making large investments in AI, including to automate parts of the securitization process, but also to help improve credit decision-making and avoid fraud, thereby lifting the quality of securitized assets," says Gracie Zhou, a Moody's Vice President and Senior Analyst, and co-author of the report.
The global ratings agency noted that Chinese financial institutions are using AI-powered face recognition and other fraud detection systems to screen and verify borrowers' identities and personal information, and to identify suspicious patterns and transactions.
In a recent report, Moody’s said that it expects blockchain standards to emerge by the year 2021, which could lead to considerable time and cost savings.
