While much of the global economy is slowly recovering from the Great Recession of 2009 and its aftermath, the retail banking industry has in some ways seen things go from bad to worse. As economies flatlined, the public response was the rollout of more stringent regulations and comprehensive oversight on banks.
Most notably, the passage of Basel III decreased retail banking leverage through several capital and liquidity measures. As a result of this regulatory standard, banks must develop a more diversified revenue portfolio, as they can no longer rely on easy access to lost-cost capital.
The current landscape of European banking is in a sense a perfect storm. Basel III has increased bank funding costs and lowered the lending ceiling. For every US$100 million of loan loss provisions, a bank’s lending capacity is reduced by approximately US$6 billion to US$7 billion.
Meanwhile, non-performing loans continue to rise across the continent. These losses reduce incoming cash flow, constrict profitability and inhibit lending capacity—further crippling revenue and profits.
Many banks are caught in this spiral, and there’s only one way out of the storm: a drastic overhaul in debt recovery techniques.
Increasing collection costs and growing bad debt write-offs have made credit risk management a business imperative. European banks can begin to right the ship with a swift and comprehensive response:
The old ways of doing business are over. Learn more about the forces of change in global banking, as well as collections and recovery best practices, in our free whitepaper Collections and Recovery: Meeting the Needs of a Changing World.
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