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AI turns sub performing loans into opportunities: doValue and Cardo AI together to innovate Stage 2 credit management

According to a recent report by PwC on Non Performing Loans market in Italy, over the past five years the volume of Stage 2 loans, those technically performing but increasingly risky, has grown by more than 25 percent, exceeding 200 billion euros in December 2023. While an evolved industry for the management of bank non-performing loans (NPL) has developed over the years, targeted strategies to to tackle Stage 2 have not yet become widespread.

Proactive management of Stage 2 loans, given their high volume, would bring several benefits to the banking system in terms of lower capital absorption and prudential provisions, with positive impact on the income statement as well, limiting and preventing their further deterioration into Stage 3 (Non Performing).

The best way to manage Stage 2 credit requires careful monitoring, analysis and the creation of an information flow to quickly pick up any signs of deterioration. Technology and experience are therefore essential to put in place a process based on the enhancement of early warning signals and the quick definition of corrective mechanisms. In this context, doValue, a company listed on the STAR segment and active in credit management services, and Cardo AI, a fintech specializing in the development of technologies for structured finance, announce a strategic partnership for effective and proactive Stage 2 management.

This partnership focuses on specialized monitoring of Stage 2 loans for the purpose of assisting banks through proprietary models for dynamic risk management and default prediction. Data are integrated with traditional and alternative external sources for a comprehensive and up-to-date view of the financial health of households and businesses. This innovative approach enables early detection of emerging trends and more informed decision-making based on a wide range of unconventional indicators. From this data, predictive models are then developed to estimate and recalculate portfolio risk and cash-flow metrics, leveraging on artificial intelligence algorithms. Such models make it possible to guide the most appropriate management strategies in relation to the individual client type.

Our partnership with Cardo AI represents a crucial step in doValue’s strategic growth plan, geared toward greater diversification into credit segments beyond NPLs and the adoption of advanced IT solutions to optimize our processes. We firmly believe in the added value of a proactive and technologically advanced approach to Stage 2 credit management. We believe that by combining doValue’s expertise in credit management with Cardo AI’s skills in developing financial artificial intelligence models, we will be able to significantly improve asset quality and profitability in the banking system”, Manuela Franchi, CEO of doValue, comments.

We are proud to partner with a top player like doValue, a leader in the credit management industry, to put our expertise in the use of alternative data and our Artificial Intelligence solutions at the service of the real economy. This collaboration is an important step toward creating a more efficient and transparent credit management system.” Altin Kadareja, Founder and CEO of Cardo AI, comments.

1. Source: PwC, “The Italian NPE market. Chasing Tomorrow,” December 2023.
2. Stage 2 status is given to exposures that have shown a significant increase in credit risk since initial recognition (unless they have low credit risk at the reporting date), but have no objective evidence of impairment.