The Risk Blind Spots Financial Statements Fail to Reveal

In credit assessment, financial statements serve as a fundamental basis for evaluating a company’s financial health. However, in practice, many material risks are not reflected in financial statements and only surface once they have exceeded manageable thresholds. These are the “risk blind spots” that financial institutions increasingly face in a fast-changing business environment.

Risk lies beyond financial statements, but in what financial institutions cannot see

Financial statements primarily reflect historical performance and often lag behind ongoing developments. As a result, a comprehensive risk assessment requires the inclusion of non-financial factors, such as:

• Legal and compliance risk

• Commercial and supply chain risk

• Operational risk

These factors play a critical role in enabling financial institutions to identify emerging risks early and to accurately assess a company’s long-term sustainability.

Legal and compliance risk

From a legal perspective, financial statements do not timely capture:

• Ongoing or potential disputes and litigation

• Abnormal changes in legal status, legal representatives, or operating licenses

• Administrative sanctions or the risk of regulatory enforcement

Such issues can disrupt business operations and cash flows, even when financial indicators still appear sound.

Case in point: Real estate companies’ violations of corporate bond issuance regulations (2021 – 2023): During 2021 – 2022, Vietnam’s corporate bond market experienced rapid growth, with total issuance in 2021 reaching approximately VND 722 trillion, of which real estate accounted for nearly 40%. When regulatory frameworks tightened from 2022, widespread violations related to information disclosure, issuance eligibility, and misuse of proceeds were uncovered. As a result, numerous bond issuances worth tens of trillions of VND were cancelled, triggering liquidity crises and project delays.

This illustrates that legal and compliance risks may not be visible in financial statements but can severely disrupt cash flows and capital structures. Independent legal and compliance due diligence is therefore a prerequisite for any capital-raising activity.

Commercial and supply chain risk

From a commercial standpoint, financial statements often fail to reveal:

• High dependency on a limited number of customers or partners

• Declines in export or import activities

• Risks arising from counterparties facing financial or legal difficulties

By the time these risks are reflected in revenue figures, recovery options are often already constrained. Such risks are rarely forecast through financial statements, yet they have a direct and significant impact on future debt-servicing capacity.

Case in point: Vietnam’s seafood industry (2023 – 2024): In 2023, Vietnam’s seafood export value declined from approximately USD 10.5 billion in 2022 to USD 8.7 – 9.0 billion, a decrease of around 18%. Shrimp exports fell by over 20% due to weakening demand in key markets such as the United States, the EU, and China. This led to declining revenues and profit margins, rising inventories, and continued high farming and working capital costs, placing considerable pressure on cash flows and debt repayment capacity across the industry.

Commercial and supply chain risks are therefore rarely reflected early in financial statements, yet they directly affect cash flows. Market diversification and flexible inventory management are critical to mitigating such risks.

Operational Risk

Operational signals that are not captured in financial statements include:

• Sudden changes in key management personnel

• Abnormal frequency of corporate profile updates

• Business disruptions or unexplained changes in operating models

These are “weak signals” that, if monitored continuously, can serve as early warning indicators of more significant risks.

Case in point: Vietnamese real estate companies (2022 – 2024) – Operational risk signaled by abnormal corporate profile updates:In 2023 alone, more than 1,300 real estate companies in Vietnam were dissolved, an increase of approximately 8% compared to 2022. Many companies exhibited risk signals such as frequent changes in legal representatives, registered addresses, or business lines-often coinciding with project delays or legal complications. Cash flows deteriorated rapidly, even though financial statements had not yet fully reflected these risks.

The frequency and abnormality of corporate profile updates thus serve as early indicators of operational risk, helping identify governance, legal, or liquidity issues before they materialize in financial statements.

From “Point-in-Time Assessment” to “Continuous Risk Monitoring”

The biggest challenge today is not a lack of data, but a lack of the ability to see risk comprehensively and in a timely manner. Risk management is shifting from a “point-in-time assessment” mindset to a “continuous monitoring” approach. Financial institutions must therefore address deeper questions:

• Where are risks emerging?

• How are these risks propagating?

• Which early signals require action before risks escalate?

The ability to identify risks beyond financial statements at an early stage is a critical factor in enhancing risk management effectiveness and safeguarding corporate customer portfolios.

Enabling Continuous Risk Management with Integrated Solutions

To achieve this, financial institutions need solutions that support early-stage risk screening while automating the assessment and monitoring of counterparties throughout the entire relationship lifecycle. In this context, FiinGate has been developed as an integrated corporate information and risk management platform covering nearly two million Vietnamese enterprises and millions of international companies. FiinGate enables financial institutions to enhance due diligence quality, strengthen risk management capabilities, and pursue sustainable long-term growth.

👉  Explore FiinGroup’s solutions for Banks HERE

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