Solving Non-Performing Loans Through Data-Driven Digital Experiences
Qualco is a Business Reporter client.
The past year has seen household and corporate debt soar in Europe because of the pandemic. Governments stepped in to keep the economy afloat: EU countries took liquidity measures to the tune of €2.3 trillion, while the U.K. government spent £280 billion to avert a catastrophic economic shock.
But furlough programs and debt repayment holidays are set to end by the close of 2021, and without them, many businesses and households will struggle to service their debts. The European Commission is expecting a sharp rise in the stock of non-performing loans (NPLs)—at an estimated total cost of more than €1 trillion.
European banks have entered the Covid-19 pandemic with, on average, higher capital ratios compared with the 2008 crisis, while the IFRS 9 accounting standards induce faster NPL recognition. On the other hand, fast NPL recognition may also constrain bank lending during downturns.
At QUALCO, we’re conscious that to mitigate costs, it’s crucial that lending organizations forecast, manage and resolve non-performing loans in the most accurate and proactive way possible by adequately covering the following three areas using advanced technology solutions.
Identifying customer behavior
In these challenging times, every financial institution, lender and credit management entity must make their data and insights work harder. To innovate successfully, businesses not only need a data strategy, but they also need to execute that strategy effectively to develop resilience.
Building quickly explainable, authoritative models of customer behavior can help businesses identify vulnerable segments and individuals who have become vulnerable because of the epidemic, as well as providing insights into the cause of such vulnerability. These segments might be based on specific professions or industry sectors, demographics or regional variation. By using this type of analysis, creditors are able to inform customer segmentation, communication strategies and treatment paths, leading to much higher returns.
Digital interactions and self-service
Customers who drift into the collections process are often not getting the discreet and convenient communication they need, resulting in payment delays and a bad customer experience. In parallel, in today’s digital world, customers demand the convenience of self-service.
Recognizing a customer’s preferred method of communication, and inviting them into dialogue via the digital channels they prefer, increases response and collection rates. An omnichannel communications approach can help lending organizations engage with customers effectively and optimize their journey through recovery and rehabilitation.
Corporate and SME debt workout
If the economic recovery from the pandemic is slow and protracted, credit losses from corporate and SME distress will rise and could overwhelm banks, further complicating NPL resolution. That’s why creditors require access to a range of practical tools to enable them to handle corporate and SME debt more quickly and efficiently than they did pre-Covid.
It will be important to help creditors quickly recognize which of their business customers are operating in “zombie mode”—i.e., the revenue they generate barely covers their operating costs and loan repayment—compared to those that have a sustainable post-pandemic business model.
For more than 20 years, QUALCO has helped organizations adapt to a constantly changing credit risk and distressed asset landscape driven by economic, regulatory and behavioral considerations, at both global and local levels. Learn how you can improve liquidation, reduce credit risk and mitigate losses through technology and innovation at https://www.qualco.eu
– Terry Franklin, Global Business Development Director, QUALCO
This article originally appeared on Business Reporter. Image credits: iStock-988062956
