The main counter to current economic and personal financial stress is the most radical and expensive set of measures any Government has implemented to combat economic downturn. There are comparisons to the “Great Depression”; more realistically we are in for a major recession, but one from which certain sectors can start to emerge fairly positively, as proactive, well-managed relaxation on social distancing start to be implemented.
Globally, China has reported a decline in growth of 8% in the first quarter of 2020 – the first decline in over thirty years. The US (at the time of writing), has 22 million people unemployment, 5.6 million filing for unemployment benefit within the last week. To put this into perspective, it is estimated that around ten million people were made jobless in the US during the last credit crisis.
In the UK, ten years plus of austerity has been undone in six weeks, but most would agree for the right reasons. Measures, such as the loans and grants to keep small to medium-sized enterprises afloat, are clearly positive, but over-bureaucracy and what appears to be the creation of many credit-risk hoops to ascertain loan funding, seem to have stifled this initiative. The Government seems to have countered this by relaxing the rules on personal guarantees, but the fact remains that the SME market contributes over £2trillion to the UK economy but only £1billion of loans has been made to just over 6,000 SMEs at the time of writing this article.
Furlough and payment holidays have been two areas that should help consumers, albeit more governance should probably be applied to ensure that only those businesses that need to furlough staff do so. Let’s not forget, the reality is that if someone only receives 80% of their usual take home, the economy is losing out on the 20% as this amount is good estimation of household disposable income. Bearing in mind that we know people will borrow against unsecured credit even in buoyant times – this is a short-term way out for many whilst they keep cash in their banks. Certain areas such as the PCP car market could well struggle, with car keys being returned from people who do not want to pay hundreds of pounds for a luxury they cannot even use.
Government enforced payment holiday processes will have been implemented with varying levels of ease. An area worth considering is the affect this will have on CAIS reporting and ensuring that borrowers can take holidays without it affecting their payment profiles.
Once the initial three-month payment holiday period has expired, more forbearance will be expected. Lenders who have previously tested arrears and special servicing activities will be in good shape, as will those with systems providing automated activities to ensure the “cradle to grave” collections process is as efficient as it can be. Collections’ staff should only deal with cases by exception – a servicing system should do all the monitoring against required policy and only put cases on work queues that break an expected event.
Undoubtedly, lenders and servicers will be considering worst case scenarios and stress testing their portfolios. From a supplier perspective, we continually look at strategic partnerships that could add value to our clients. One in particular, Yabber from Rockstead Group, looks to be really interesting software that can measure adherence to client SLAs and compliant process in areas such as arrears management and TCF, etc. Definitely one to watch.
2020 will be a monumental year for us all, with no realistic timescales for any shoots of recovery to show. Our industry will undoubtedly ride whatever size of wave COVID-19 generates and push on as positively as it always does. A renewed vigour on a customer centric focus is core to all activities, including arrears management, and forbearance will be an outcome. Originations from non-bank lenders will return.
We have been here before, but not to this scale, and those with experience will be the ideal partners for both consumers and lenders.
By Richard Pike, sales and marketing director of Phoebus Software Ltd.