Through the worst of the pandemic, the government set up interest-free emergency support packages to help struggling businesses. With the economy slowly recovering, Mike Hampson, CEO at Bishopsgate Financial explores the range of options available for banks to ensure repayment. 

Banks have handed out more than £75 billion to 1.6 million[1] firms under several emergency support schemes. But the harsh reality is that not all loans will be repaid as UK banks warn up to 50% of coronavirus loan borrowers[2] will default on payment.

Economic recovery relies on banks continuing to do the right thing, to remain financially viable. But, with the debt recovery burden falling on the banks that issued the loans, the financial community is concerned they will be blamed by businesses unable to afford loan repayment.

The process will depend heavily on banks deploying the appropriate client relationship management skills and experience. Debt recovery is a specialist area and can be challenging at a time when skilled payment collection experts are in short supply, warns Bishopsgate Financial’s Change Perspective 2021 report[3].

Managing from the inside with client support training

The financial community estimates up to 60% of new coronavirus scheme loans [4]will default or suffer repayment issues that will drive previously unseen levels of non-performing loans. It’s a tough balancing act, which needs careful management of the lending transaction lifecycle, from origination through to collection, recovery, and handling bad debts.

Banks no doubt already have frameworks in place to manage these elements, but it’s also important to make client interactions easy to ensure their genuine concern for their customers is clear.

Consequently, hundreds of workers at major banks including HSBC, NatWest, and Metro Bank[5] are receiving training in how to deal with vulnerable customers and “demonstrate empathy” as the first wave of repayments for coronavirus loans fall due. Staff ‘sensitivity’ training builds on client-support and workout capabilities, such as being susceptible to early-warning systems, developing short-term forbearance solutions, loan modifications, and providing guidance on alternative products.

Mitigating the risks with constant customer communication 

In the face of so much uncertainty, preparation is key. Financial institutions should make it easy for customers to communicate regularly via any channel.

Greater and timelier direct communication is to be encouraged. Bank managers should create opportunities for human interactions for distraught customers who just want to talk through their concerns and establish helplines for those who need support during remote (mobile or internet) transactions. HSBC, now has 400 staff in its debt collection team[6] to discuss payment holidays, interest-only repayment periods, and extending loan terms. The aim is to ensure staff had a “consistent understanding of vulnerability” and are “aware of the factors that could make an individual vulnerable” when having repayment conversations with customers.

An executive at another bank said its expanded debt collection team was being trained in “empathy, vulnerability and listening skills”. The individual told The Telegraph: “Ultimately, we don’t want to damage the economy by being overly aggressive.”

My view is that banks should embed more dialogue and start reaching out to clients proactively to discuss their loan repayment options or simply to be reassured. This will in turn support fair treatment of customers and promote good customer outcomes.

Data mining for early detection of financially distressed customers

With the substantial amount of data intelligence at their disposal, banks can better assist distressed customers by developing a robust early warning system. This would consist of quickly identifying and personalising the right repayment hierarchies for customers that require immediate attention and remediation, in order to prevent their borrowings from converting into Non-Performing Loans (NPL)

Re-training existing teams also allows for greater scrutiny over the applications to reduce the potential for future non-payment of loans. This approach will not only build a more satisfactory, personalised client experience but could also boost the likelihood of Covid-loan returns.

The banks that address their NPL situation first will have the best chance of getting out of the crisis, recovering more quickly than the competition, and having better access to the capital they might need.

[1] https://www.thisismoney.co.uk/money/smallbusiness/article-9457301/Banks-poised-call-billions-Covid-loans.html

[2] https://www.ft.com/content/8a551c37-2de8-446b-a8b8-d4a61d33ef73

[3] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021-resilience-digital-climate-and-collaboration

[4] https://www.theguardian.com/business/nils-pratley-on-finance/2020/oct/07/questions-treasury-covid-loan-scheme-bites-back

[5] https://www.telegraph.co.uk/business/2021/04/19/bank-staff-get-sensitivity-training-calling-covid-debts/

[6] https://www.thisismoney.co.uk/money/smallbusiness/article-9457301/Banks-poised-call-billions-Covid-loans.html