Intellectual capital risk assessment : a perspective from credit risk analysts

Intellectual capital (IC) of an enterprise refers to the knowledge, skills and experiences of the employees and the values like corporate culture, business processes and customer satisfaction which they create for the enterprise. IC is sometimes known as intangible or knowledge assets as opposed to the much more familiar traditional physical capital and financial capital, which are tangible in nature. Many researchers found that IC would create the majority of corporate values, especially for knowledge-intensive companies, explaining why IC has become the single most important driver of enterprise business growth, sustainability, innovation and competitive advantage in our globalized environment. Therefore proper assessment and reporting of these critical though intangible assets are essential in addition to what financial reports received by the business community for years. As there is currently much literature written on IC performance in the field already, this paper focuses instead on the risks such as knowledge loss from poor documentation or resignation of key staff. In particular, how a knowledge of IC risks can enhance the quality of credit risk analysis of financial institutions is also studied, as a poor credit risk management may quickly erode the capital base and accumulated earnings of any bank. In this research, an exploratory test design comprising a literature review and semi-structured interviews with credit risk banking professionals have been developed and adopted. Information is collected on IC risks in general and how and why IC risks can be useful in credit risk analysis of business loan applicants. A conceptual framework is then put forward to identify, analyze and assess the potential IC risks and their impacts, which are important considerations in the value creation process of an enterprise. The relevance of the framework to credit risks analysis is also addressed.