AI's Credit Impact: Benefits and Challenges

Fitch Ratings recently highlighted the growing adoption of artificial intelligence (AI) as a positive for companies' credit outlooks in the medium to long term. While AI offers innovation and efficiency, financial institutions face challenges like data privacy, security, potential bias, and regulatory scrutiny. The impact of AI on credit ratings varies based on governance, risk management, and regulatory environment.

Fitch reported that AI technologies like machine learning, deep learning, and robotics enhance operational efficiency for financial firms, especially in high-volume sectors benefiting from chatbots, fraud detection, and automation. Generative AI, creating content from user input, is becoming mainstream but lacks transparency, posing risks like inadvertent discrimination and limiting applications in heavily regulated areas like consumer lending.

However, AI excels in fraud detection and risk management, enabling quicker response to risks and improving cyber security by ensuring secure access and device verification, according to Fitch. Less-regulated sectors may adopt AI faster but face increased cyber threats like AI model hijacking or data theft.

Financial firms increasingly rely on third-party AI services, emphasizing the need for strong operational resilience and compliance with tougher regulatory requirements, the Fitch report said. The US Congress is addressing AI-related concerns with bills focusing on data protection, fake content, and customer security, with regulatory scrutiny potentially impacting AI usage in underwriting and hiring.