This month, Alexander Probodziak (AP), Global Head of Business Development at Brady, and Andre Montellano-Heins (AMH), Credit Risk Solutions and Pre-Sales Lead (and a former Credit Risk Manager), sat down to discuss how Brady Technologies is responding to recent market volatility and evolving credit risk demands. Below sheds light on best practices and upcoming innovations in credit risk management.
AP: Given the volatility of energy markets triggered by climate change and geopolitical conflicts—particularly the war in Ukraine—what are some of the current challenges for credit risk teams in energy trading companies?
AMH: The invasion of Ukraine by Russia in 2022 heightened uncertainty in global energy markets. We’ve seen energy prices (both power and gas) spike, along with rising inflation, higher interest rates, and in some cases, the bankruptcy of energy suppliers.
A robust credit risk management system like Brady’s CRisk has always been crucial for real-time monitoring and quick reaction to market moves. However, after the extreme price peaks of 2022, accurately measuring both credit and liquidity risks has become even more critical.
Traditionally, credit teams focused on credit analysis, exposure monitoring, limit setting, and negotiating credit mitigants. Now, they must also manage liquidity and working capital risk proactively. Credit managers are increasingly looking for daily opportunities to optimise credit exposure, balancing both positive and negative exposures—to reduce working capital requirements.
AP: Can you elaborate on what you mean by optimising credit exposures?
AMH: Sure. Let’s revisit the concept of “triangulations,” a type of credit optimisation. In my previous roles, I focused on setting up triangulation or credit optimisation trades for OTC energy counterparties.
For example, say your company has a positive EUR 20 million exposure for April 2025 with Party A (from TTF gas trades) and a negative EUR 20 million exposure for April 2025 with Party B. Because of differing credit support annexes (CSAs), you might not be able to call collateral from Party A, yet you’re forced to post EUR 20 million cash collateral to Party B. By proposing three offsetting trades at current market prices—buying from A, selling to B, and having B sell to A—the net exposures can be wiped out. The result: your credit exposures to both parties drop to zero, and you can reclaim the EUR 20 million posted to B.
AP: That process seems straightforward on paper. Why are credit teams finding it challenging to complete these optimisation strategies efficiently?
AMH: In theory, it’s simple. In practice, it’s complex because:
- Imperfect Information: You don’t always know the trading relationships between Party A and B. You might propose EUR 20 million in new trades, but only EUR 5 million is feasible once you discover each party’s actual position.
- High Manual Effort: Finding potential triangulations can involve analyzing exposure data for hundreds of counterparties across multiple markets, currencies, and instruments.
- Time-Consuming Communication: Even after identifying potential optimisations, you need to contact multiple counterparts, negotiate, and confirm if they’re open to those trades.
We’ve heard from several clients that a single credit analyst can spend up to two days just sifting through exposures. The risk of missing good opportunities is significant.
AP: How can Brady help address these operational bottlenecks?
AMH: We’re developing a Credit Optimisation Module for our CRisk software. This module will:
- Automate the Analysis: It reviews all forward exposures daily, identifies potential triangulation or credit optimisation scenarios, and flags them in a user-friendly dashboard.
- Streamline Communication: Built-in email functionality allows you to reach out to counterparties directly about specific optimisation scenarios—much like how margin calls are processed.
Our goal is to provide an end-to-end solution—from spotting optimisation opportunities to seamlessly converting those into trades—without the usual administrative friction.
AP: How is this module different from third-party triangulation service providers in the energy trading space?
AMH: Third-party triangulation services rely on gathering credit data from multiple clients, running their own algorithms, and then presenting potential trades. Those services can be valuable, but they don’t remove the burden of analysing and cleaning your counterparty data.
Our Credit Optimisation Module is complementary to these external services. It automates the internal credit exposure analysis and organizes the data in a format suitable for those third parties, if you choose to use them. Essentially, our module tackles the biggest headache—preparing and evaluating the data—so that any subsequent third-party engagement is more efficient.
AP: Where does the Credit Optimisation Module fit in CRisk’s roadmap, and what else can we expect from Brady to help clients streamline credit processes?
AMH: The Credit Optimisation Module is high on our priority list due to strong client demand. Another key feature we’re rolling out is the XML Broker List reporting functionality.
Historically, trading restrictions were often shared with brokers in Excel files, which can lead to mistakes—brokers often manually process the data. The new XML standard developed by the EFET/ETE working group allows for standardized, machine-readable data. We’re implementing this in CRisk so that our clients can generate an XML-based broker list as easily as they now generate Excel-based lists.
AP: For companies curious about return on investment, which key metrics or KPIs should they track to measure the impact of credit optimisations on their operations?
AMH: Great question. I recommend focusing on:
- Reduced Working Capital: How much collateral (cash or LC) do you no longer need to post after optimisation?
- Exposure Coverage: Are you successfully reducing large exposures or high-risk pockets in your portfolio?
- Frequency of Triangulations: How often you can execute these trades indicates how agile your credit risk process is.
- Time Savings: Metrics around analyst hours or days saved are helpful to track operational efficiency.
AP: Thank you for walking us through Brady’s approach to modern credit risk challenges. Any final thoughts on where the market—and CRisk—are heading?
AMH: We’re committed to innovation. We’ll be at E-World in Essen, Germany, on February 11-13, eager to meet clients and prospects to discuss everything from triangulations to liquidity management. This sector keeps evolving, and so do our solutions.
