KUALA LUMPUR: Artificial intelligence (AI) and distributed ledger technologies (DLT) such as blockchain will bring process efficiency and new products, but also amplify existing risks and give rise to new ones.
Both risk and opportunity will be transmitted to debt issuer credit profiles through five broad channels, with impact varying by sector and issuer strategy, Moody's Investors Service said.
"Whether the credit impact of technology transformation is positive or negative will depend on how each debt issuer navigates five main transmission channels, mainly new product offerings or revenue opportunities, efficiency gains or operating cost reductions, investment strategy and financing, regulation and policy changes, and cybersecurity," It said.
As AI and DLT applications are implemented, they could affect the relative credit risk of issuers within and across sectors and countries.
"Lessons from past transformations, whether the industrial revolution or the Internet, suggest that new technologies can dramatically alter business models, attract new entrants, and widen
the gap between the best and worst-performing organisations.
"AI could do this across all sectors, while DLT will mainly impact the financial industry," Moody's said.
Those that can leverage AI and DLT to enhance products and efficiency better than competitors while managing financial, regulatory, and cybersecurity risks are bound to see improvements in their credit profiles.
Moody's efficiency gains stemming from automation could result in substantial cost savings as companies can reduce time spent on everyday tasks through AI such as text generation, data analysis, and customer service.
"AI can also optimise manufacturing expenses. For instance, predictive maintenance anticipates machinery failures, ensures timely repairs, and avoids expensive breakdowns."
DLT could help issuers reduce financing costs in the next five years, notably for smaller issuers.
Digital bonds – bonds issued and managed on DLT - hold the potential to lower transaction expenses and make capital markets more accessible.
Market participants will be able to raise debt financing more quickly and frequently, strengthening their liquidity.
"However, integrating AI and DLT into operations requires investments in hardware, software, data, and talent without guarantee of positive return.
"New technologies can escalate IT costs and lead to vendor dependency, especially in AI, where only a few providers own the best-performing models," Moody's said.
Such a dependency will reduce organisations' operational leeway and increase the risk of service disruptions.
While the unit prices of entry-level services are fairly low, the firm noted that costs can be high if used often, and the latest models come at a higher price.
"Any industry consolidation would push these prices even higher, although the availability of open-source models has so far limited the GenAI providers' room for manoeuvre."
As for job markets, new technologies may reduce workforce if businesses can achieve the same output with fewer employees.
Companies operating in industries with limited growth prospects may be more inclined to follow such strategies because they have limited opportunities to repurpose existing employees.
"Whereas previous technological transformations mostly affected blue collar workers, GenAI could mainly impact knowledge workers, professionals who generate value by handling and producing information.
"However, AI will affect more job categories as its capabilities and accessibility improve," Moody's said.
Although AI and DLT also have the potential to create new job opportunities, the transition may not be smooth.
Moody's feels that sovereigns may face a period of rising unemployment as their economies adjust to these technological changes.
"Inequalities may also increase if the demand for highly skilled workers rises while the demand for moderately skilled workers diminishes.
"However, transparent and fair AI decisions can reduce discrimination and bias in decision-making."