The COVID-19 pandemic is forcing lenders to contend with a host of issues, including quarantines, diminished cash flow, travel restrictions, supply chain disruptions, and overall strains on workflow. The crisis requires companies to consider not only their short-term crisis management but also how their business continuity plan will need to be adapted. The unprecedented and unexpected demand for relief, and the speed with which lenders and servicers are required to or choose to implement new regulatory requirements and deliver relief, challenge many participants in their ability to implement a comprehensive protocol of controls and processes that ensure and document compliance with existing legal requirements, internal policies and processes, regulator expectations, and best practices.
At Insight, here’s our most recent insight into the lending industry. By talking to our existing customers and keeping in touch with the industry, we’ve come up with challenges the industry may be currently facing and tips and best practices for managing customer protection and regulatory compliance.
Key challenges and tips to overcome:
Non-performing loans: Due to the pandemic, the economy has come to a sudden halt. This has brought about high levels of non-performing loans (NPLs), i.e. loans that are in (or close to) default. High NPLs are problematic because they impair balance sheets, depress credit growth, and delay economic recovery. It’s a tough balancing act and one that demands careful management of the lending transaction lifecycle, from origination through to collection, recovery and handling bad debts.
Key takeaway:
- Implement customer-centric measures to distressed borrowers by analyzing customer data
- Create debt restructuring support to non-healthy clients
- Introduce a clear communication strategy for affected customers on relief programs
Volatility in credit scores: Lenders are experiencing unanticipated twists to the application process due to fluctuating credit scores. Customers’ credit scores declining due to increased credit card usage, missed payments, etc. It’s a tough time for lenders to handle this unevenness between loan approval and closure.
Key takeaway:
- .Introduce decisive support to borrowers with data and insights
- .Introduce individual customer cashflow modeling to proactively reach out to customers with tailored, relevant solution proposals
- Develop new policies to address Covid-19 specifically and communicate it with borrowers
- Restructure guidelines
Running business maintaining social distancing: As the globe continues to navigate through uncertain times, the safety and well-being of every individual remain the top priority. In affected areas, you’ll have customers who can’t, or don’t want to, go somewhere in person to sign paperwork. Here lenders need to be prepared in dealing with social distancing norms without disturbing daily business.
Key takeaway:
- Provide real-time gross settlement systems which facilitate electronic payments and online loan processing
- Provide clear communication on the virtual service options you provide
- If online requests spike, be prepared to move in-person staff to online channels to provide additional support to strained call centers.
Refinancing Demand: Refinancing can be either a good thing or a bad thing for both lenders and borrowers. However, for lenders, when catastrophes like the virus send rates south, there will be a huge demand from customers to refinance at lower rates. This means new information management but at the same time you are being customer friendly and empathetic. Many lenders have trouble keeping up with this red-hot demand.
Key takeaway:
- Introduce skipping the full appraisal process for refinances
- Introduce Cash-out refinance option
- Implement hardship and forbearance options
Business continuity plans: Managing in normal times is repetitive in nature where problems are minimal, and outcomes are usually as expected. Crises on the other hand are sudden and outcomes are unknown. Thinking long-term while amid a crisis is a challenging exercise. No one can be fully prepared. Just think pre and post covid19.
Key takeaway:
- Mitigating the manipulation of customers and employees during times of crisis
- Bringing the benefits of automation to improve operational efficiency
- Refocusing compliance management and improving business profitability
- Scaling cyber risk programs in the new economic reality
Operating in an uncertain world means you must be digitally native, agile, and, data-driven.
Insight Consultants can help you in the adoption and use of digital native processes, set up an adaptive, agile strategy, and build flexible solutions to respond to altered circumstances.
To find your footing in this new normal, Talk to Us
