AI likely to boost credit quality: Moody’s

The adoption of artificial intelligence (AI) will enable companies to boost their credit quality by enhancing productivity, but it will be tough for firms to build a sustainable advantage through AI, says Moody’s Investors Service.

In a new report, the rating agency said the emergence of AI offers opportunities for companies to improve their productivity and product offerings that could drive stronger credit metrics.

However, given that AI services are relatively easy to deploy, firms likely won’t be able to establish a durable competitive edge from their use, unless it enables genuine product innovation, it suggested.

“The most successful issuers will leverage the experience gained with [generative] AI to deploy other AI models,” the report noted.

Moody’s said the technology may also lead to a wider gap between early adopters and laggards, which will create opportunities for new entrants, and intensified competition.

“It will also heighten technology, cyber and legal risks, among others,” it said.

Additionally, large tech companies are seeking to dominate the technology’s development, which may enable them to benefit most, the report noted.

“The money and the effort invested have already yielded visible progress, but most innovations originate from a handful of technology companies, raising the risk that a few issuers could capture the lion’s share of the value created,” it said.

At the macro level, Moody’s said that AI could also bolster overall economic growth by raising both labour and capital productivity, “although full economy-wide benefits may not materialize this decade,” it noted.

Furthermore, the use of AI could “displace workers and exacerbate inequalities,” it warned.

“Countries and regions with strong legal processes are more likely to harness AI’s potential by establishing appropriate regulatory frameworks while mitigating its negative consequences,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.