“The new normal” has a deceptively comforting ring to it. Now lenders find themselves navigating unfamiliar territory — and that is far from comfortable. Here’s how to manage risk in the new normal.
Around the world, the COVID-19 pandemic is continuing to wreak havoc on people’s lives. Countermeasures taken to contain it have stopped large sectors of the economy from functioning. As we move into spring and summer of 2021, vaccine rollout is driving a sense of cautious optimism that we may be turning a corner.
That said, the “new normal,” a phrase that rolled off the tongue so easily last year, has a deceptively comforting ring to it. The new normal is far from comfortable for many lenders. They are facing an unfamiliar environment in which risk factors have shifted radically.
In many countries, the lockdown triggered massive unemployment across multiple sectors. The crisis has prompted a reevaluation of borrowers’ creditworthiness and lenders’ asset quality under conditions of considerable uncertainty. Suddenly, lenders must evaluate and monitor credit risk in new and unfamiliar ways — in some cases by region, industry sector and even subsector. For example, people who work in the technology or communications industries have been largely unaffected by the pandemic, so their credit risk remains stable. However, for borrowers who have been building a career in hospitality, tourism, retail or other hard-hit sectors, the forecast is more nuanced.
Nuanced? Yes. Because, even if a borrower works in a sector that has been hit hard, if their employer has a robust online business, their job is probably safe and their creditworthiness is unchanged, for now. Turns out, getting to grips with the “new normal” is turning out to be fiendishly difficult for some lenders because they have limited visibility and access to reliable data.
For lenders who have not kept up their investment in new technology, the challenge of the post-COVID environment is significant. Consider, lenders must be able to differentiate between different borrowers in the same sector with information that is scarce and probably out of date because the economic situation on the ground is evolving fast. The task is not made any easier by unexpected changes in regulation, government stimulus or tax policy.
So, what is the solution? Modern lending systems give lenders the power to evolve their product offering and reconfigure workflows without a massive investment in time and resources. Data and analytics capabilities are also part of the solution. Systems that are API-based can communicate easily with multiple data sources and can help provide the optics needed to make informed decisions in real time. Conventional sources of credit data are lagging and may be out of date, so access to alternative sources of information about individual borrowers can help lenders make better decisions.
In areas of loan management, lenders will need to invest in systems that are flexible enough to meet the needs of distressed borrowers without damaging their credit score or sending them into default. If it comes to that, lenders will need to be able to communicate in real time to their collection customers across all channels, not just by mail and email.
Finally, technology can drive efficiencies across the whole organization, especially important as we see the fallout of the pandemic start to use up company resources. Automation can free personnel from tedious busy work to help them solve problems for their customers while building an organization better equipped to thrive in the “next normal.”
Vlad Kovacevic is the founder and CTO of Inovatec Systems. With a focus on efficiency, flexibility and connection, JAVELIN by Inovatec is a state-of-the-art lending platform.