In Focus Consumer Credit
Even employees with a strong affinity for
numbers struggle to estimate the impact of payment plan changes on Net Present Value, Expected Loss and Capital requirements. Mathematical methods can, therefore, substantially improve the selection of the appropriate forbearance measure. Such methods allow derivation of strategy
trees that, depending on the nature and extent of the financial stress, select the tool that is most appropriate in context of a given business goal. And such methods could also be applied
for the long term, especially if the crisis turns into a persistent recession, with substantially inflated NPL levels. In like economic conditions we have seen Banks that focus on their forbearance capabilities increase take up by 300% whilst
July 2020
reducing post restructure default by the same percentage. Many organisation will not, many will believe that smaller than 10% post restructure default rates are acceptable and many will get caught in that classic stress situation of washing machining. This phrase originated from the endemic repetitive restructuring of failed restructures. As a short-term measure, organisations
should at least temporarily reduce the instalment to an amount that seems affordable considering the customer’s available income. Debt payment to income metrics used in originations can act as a guideline of what seems acceptable for a given product or portfolio. Again, data-driven segmentation can help to identify the most appropriate customers
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for this support and if open banking (where available) is not yet playing a part then the organisation will be suboptimal
Taking the opportunity Mid-term, COVID-19 could well provide the perfect opportunity to update your technical debt collections infrastructure. A contemporary collection system will enable the swift adaptation of segmentation and treatment chains to changing volumes, capacities and risk distributions. Omnichannel communication strategies
will also improve productivity, as well as avoid detriment to the customer relationship. And the implementation of mathematical models as well as the integration of self-service platforms are often able to be deployed despite legacy technologies. CCR
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