ith COVID-19 disrupting lives and businesses globally, customers increasingly rely on banks to help navigate the downturn. This provides the banking sector with a real opportunity to enhance its reputation and build trust, becoming a critical pillar supporting customers, economies and communities through these challenging times.
The way banks in the region have helped pandemic-affected customers in the short term – as the conduit for credit and liquidity flows to businesses and households, and through the implementation of large-scale loan repayment deferral programs – is already creating some upswing in community goodwill. However, the latest EY Future Consumer Index - Asia-Pacific countries covered by the Index being Australia, China, Japan and New Zealand - reveals only 23% of Asia-Pacific consumers completely trust financial services firms in this time of crisis.
Once the immediate issues of the crisis are dealt with, the next phase of the recovery will raise new risks and potential trust challenges for the banks. As we move beyond immediate pandemic responses, banks face complex choices around risk appetite realignment, credit decisioning and managing credit losses.
Deferred payments and additional debt taken on by businesses and households in response to liquidity issues must ultimately be repaid. While customers have been differently impacted by this crisis, it’s inevitable some will end up with unsustainable levels of debt. The need for speed in the initial response to the crisis, coupled with continually evolving economic conditions, means there is the potential that some operational and control breakdowns may have occurred. This raises the risk that outcomes could be perceived as unfair or unequal.
So, with the extraordinary disruption and uncertainty generated by the COVID-19 crisis, it’s more important than ever for banks to have the right processes in place to manage risk while also treating customers fairly. To achieve the right balance, banks should:
- Review lending policies, including underwriting criteria and decisioning processes, to ensure appropriate loan and customer selection.
- Identify at-risk client segments and industries and act early to manage arrears and minimize losses. Working with customers to resolve problems will help foster longer-term relationships.
- Assess collections strategies to ensure they are applied consistently and align to desired customer outcomes, helping avoid poor debt collection experiences that may damage reputation.
- Design ongoing solutions for businesses that may need restructuring, loan workouts and extended financial support beyond the immediate crisis. This may require a scaling up and strengthening of capabilities in the banks’ restructuring and workout teams, particularly in markets like Australia, where long term benign conditions have led to diminished capacity and experience in these areas.
- Strengthen complaint and dispute resolution programs. Banks that can respond efficiently and effectively to potentially higher volumes of disputes related to credit decisions will be better placed to maintain customer confidence.
- Engage through clear, transparent and timely communications to help manage the expectations of customers experiencing heightened financial stress.