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Finance: AI Stress Test finds material risks: Fitch

Artificial Intelligence poses a material risk of credit rating downgrades for issuers in a narrow band of sectors under an adverse scenario, Fitch Ratings says in its report ‘Artificial Intelligence Stress Test’. Most issuers and transactions would not face broad rating changes.

Fitch conducted an AI stress test spanning the Corporates, Financial Institutions, Infrastructure and Structured Finance sectors that scored credit exposure over a five-year horizon under three adverse scenarios: disruption, over-investment and asset-impairment.

In the disruption scenario, AI erodes competitive positions faster than incumbents can adapt. The over-investment scenario includes a lower-than-anticipated AI monetisation and a reduction in capital flows funding the AI ecosystem capex. And under the asset impairment scenario, there is a deterioration in loans and investments to AI-exposed entities. Each of these scenarios is calibrated to an approximately 10%-20% likelihood of occurring over the next five years and are not mutually exclusive. Scores run 0-100. At 40 or above, there could be negative rating implications for a representative entity in the sector under an adverse scenario, based on applicable Criteria.