In brief

In brief

  • Banks around the world face an imminent credit crisis as their clients struggle to stay afloat and meet loan repayments.
  • In the US alone, by mid-FY20, the top banks had made provision for almost $60 billion of non-performing loans.
  • Banks need analytical, personalized credit management to support clients, satisfy shareholders and enable the restructuring of the economy.
  • We propose four actions banks can take to achieve this balance and emerge from the crisis as heroes rather than villains.


Banks have a vital role but must proceed with care

While the impact of COVID-19 on consumers and small businesses was swift and severe, the level of non-performing loans by the end of Q1 FY20 was relatively low. The actions of central banks around the world to flood credit markets with liquidity has certainly helped stave off disaster. However, as the crisis unfolds, banks will play a critical societal role in helping both consumers and businesses navigate what is likely to become a challenging couple of years.

25%

1 in 4 credit card holders in the US had their credit limits reduced in April or their cards closed altogether

50%

UK banks forecast that up to half of small-business borrowers in the country’s Bounce Back Loan Scheme could default

Most banks today have significantly more capital at their disposal than they did at the time of the 2008/9 crisis. They are well positioned to emerge from COVID-19 as heroes to their embattled clients, not villains that caused or exacerbated the crisis. But to do so they need to resolve a host of conflicting priorities that matter greatly to regulators and shareholders as well as clients.

They will need a highly informed approach to credit management that will help them make clear-sighted decisions about how parts of the economy should be restructured. Too indulgent, and the economy won’t adapt to serve a post-COVID world. Too harsh, and they risk becoming pro-cyclical amplifiers of the crisis.

To balance these diverse requirements, it would benefit banks to rethink many of their credit-management approaches. We propose taking steps across four key credit and collection areas:

Portfolio strategy and execution monitoring

Adapting credit and collection strategies to consider a broad range of factors rather than focusing only on asset recovery

Execution excellence

Scaling quickly and effectively to handle the upcoming credit wave

Truly digital credit management

Using data, analytics and automation to understand and respond appropriately to the true risk of each client’s business and environment

Human + machine enablement

Using intelligent, automated machines alongside people to give clients high-end treatment usually reserved for high-net-worth and corporate clients

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What we are experiencing today is a ‘phony war’ that precedes the escalation of the credit crisis. At this time, banks can hope for the best but should prepare for the worst. The most effective among them will anticipate the crisis and address it holistically, thinking beyond funding debt and innovating for a post-COVID-19 recovery.

To learn more about the steps you can take now to outmaneuver the impending uncertainty and enhance your credit management capability—for the immediate as well as the long term—register to read our report or reach out to one of our team members listed below.

There is the fine line between being a hero and a villain. Banks will need to walk this line carefully, and in doing so will need to rethink many of their credit management approaches.

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