Business development companies (BDCs) and wealth managers are the most vulnerable sectors to artificial intelligence (AI)-driven credit risks within financial institutions, Fitch Ratings said Monday.

Fitch’s analysis reveals that BDCs face the highest asset risk due to significant exposure to the software industry, which is particularly susceptible to AI disruption.

Wealth managers are also identified as highly vulnerable to business model disruption as AI-enabled model portfolios and direct indexing platforms offer low-cost alternatives to traditional advisory services.

Fitch evaluated financial institutions’ credit risk exposure via asset risk and business model risk.

Asset risk encompasses lending to, and investment in, AI infrastructure and disrupted sectors. Business model risk captures disruption risk as AI enables new competitors or substitutes, as well as operational risk.

According to Fitch, material AI-driven cost savings are yet to materialize, with most use cases still in the proof-of-concept stage.

However, it noted that operational risk is set to rise across the board as financial institutions deploy AI solutions throughout their value chains.

“AI is not considered a near-term rating driver for financial institution sectors, with credit outcomes still dominated by traditional considerations,” it added.

Fitch flags AI-driven credit risks in technology, media, and cloud sectors