Today’s banks face the lingering effects of crisis head-on. They have limited capabilities for new business and the consequences of the credit crunch are front-and-centre, with a direct impact on bank operations:
80,000 jobs were cut from Europe’s top banks in 2013.
Barclays made an early May announcement to eliminate 19,000 jobs by 2016 as profits fall.
$800 billion (€ 592 billion) in recovery was paid for by European taxpayers between 2008 and 2012.
Rising unemployment and taxpayer burden are hardly ideal. Without the ability to rely on new business as a revenue generator, banks instead have to turn to new strategies to compensate for the loss.
Are there methods to improve returns without risking additional losses?
More streamlined, efficient collection and recovery processes built through tech-savvy solutions for retention and growth are one way to get book balances back to black. Today’s banks have a need (and an opportunity) to reassess these operations in response to battered balance sheets and market trends.
If it’s broke—fix it. For European banks, that means addressing three key evolving collections needs.
Previously, we have addressed the non-performing loan problem and banks’ need to respond to the issue. The problem is particularly acute in Europe, but spans worldwide:
At the start of this year, reports surfaced that bad loans in India had reached a record high, enough to hurt profits, put a halt on lending and threaten India’s position as Asia’s third-largest economy.
Chinese banks reached $4.7 billion in non-performing loans in the last quarter of 2013—their highest since the start of the financial crisis.
Spanish banks’ non-performing loans rose at the start of this year—to 13.78 per cent in January 2014.
Failure to address these concerns means more non-performing loans will be accrued, which only postpones recovery and stalls profitability. To cope, banks must consider:
Which of their accounts are at the greatest risk of not performing?
What causes these core accounts to not perform?
What measures could be put in place to meet payment challenges and decrease the risk of accounts not performing?
In response to downward trends, the international Basel Committee on Banking Supervision issued a set of reforms (Basel III) with the following overarching focuses:
Capital, with associated risk coverage and leverages.
Risk management and supervision.
For specifics around each pillar, take a look at this overview table created by the Bank for International Settlements. Stricter regulations in these areas mean greater attention to detail in the process is absolutely necessary to ensure compliance. Ask yourself:
How thoroughly are processes documented? How are formal records kept?
How rigorous is your credit analysis?
How does your team account for risk, unsecuritised product and liquidity?
Banks must discuss and document proof that policies and procedures are up to new standards, particularly as rumours circulate that Basel IV is on the horizon. KPMG explores what this could look like here.
With non-performing loans on the rise, banks must adapt to become much more efficient and tech-savvy in collections and recovery to stay profitable—since they cannot rely completely on new business if they want to grow.
Rethink and reassess current processes—what can be streamlined or evolved?
Monitor trends for new threats and compliance requirements. Become industry experts and adjust processes to stay ahead.
Invest in a comprehensive collections and recovery solution that helps your business do it all, through each step of the credit risk cycle, from loan origination to debt resolution.
Download our free whitepaper, Collections and Recovery: Meeting the Needs of a Changing World, to learn how to rethink successful collections and recovery practices.
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