1、NOWNEXT July 2020 OUTMANEUVERUNCERTAINTY How Banks Can Prepare for the Looming Credit Crisis 2 BANKS HAVE A CRUCIAL ROLE TO PLAY BUT WILL NEED TO PROCEED WITH CAUTION Banks around the world face an imminent credit crisis, ignited by COVID-19. Unlike the 2008 Global Financial Crisis, when banks were

2、the villains who triggered the crisis, the next few years will offer an opportunity for banks to be heroes. The world needs them to help absorb the economic impact of the pandemic and work with governments and other agencies to stimulate a rapid recovery. But to do so, retail and commercial banks mu

3、st navigate a careful path. They will need to view credit risk in an objective and analytical way, while being creative and far-sighted about how best to manage that risk to both their own advantage and the broader benefit of the societies in which they operate. In this report we propose four key ac

4、tions that banks should consider taking as they navigate that path. 3 The height of the 2008 Global Financial Crisis was primarily a liquidity event in which financial institutions failed when they were unable to fund their balance sheets. Central banks learned the lesson and, as the COVID-19 crisis

5、 mushroomed, they flooded credit markets with liquidity through broad-based bond buying programs, international swap lines, and other financial instruments. But while there have been no Lehman-like earthquakes, another financial disaster in the form of a rising wave of credit defaults is now visible

6、 on the horizon and is threatening to swamp the banking system. A credit crisis is approaching 4 With mandatory shutdowns, supply chain disruptions, and travel restrictions, many businesses have been devastated by COVID-19. Unemployment in countries around the globe has hit record highsfor example,

7、14.7 percent in the US1(the worst since the Great Depression), 6.0 percent in China2(the highest ever), 6.7 percent in the European Union3(interrupting a six-year decline), and 7.1 percent in Australia (the highest in 19 years).4Many of those still working are taking home less pay as a result of sho

8、rter hours, lower salaries (cut by employers to avoid layoffs), or both. Our estimate is that the combination of increased unemployment and pay cuts could shift 8 percent of households in the EU and approximately 10 percent of those in the US into a lower-income bracket.5 From a position of strength

9、 in January, consumer confidence, aggregate demand, and investment spending have all been buffeted by the pandemic. More than one-third of the consumers we surveyed globally find themselves financially squeezed, with less disposable income than before the pandemic.6The Organization for Economic Co-o

10、peration and Development projects a 30 percent drop in consumer spending in many advanced economies.7Our research indicates that 88 percent of consumers are worried about the economy and 64 percent are concerned about the impact on their personal job security.8Unsurprisingly, their priorities have s

11、hifted to basic needs, sending the demand for hygiene, cleaning, and staple food products soaring, while non-essential categories have slumped. Should this demand pattern continueand we suspect it will as COVID-19 lingers and re-surgesit will cause many companies and possibly entire industry sectors

12、 to disappear. Already, more than 50 percent of the small and medium enterprises (SMEs) we surveyed in April have seen a significant decrease in sales (Figure 1). As the prospect of a quick V-shaped recovery recedes in many countries, the result will be more job losses, limited economic growth, and

13、an environment in which many consumers and businesses will be unable to pay their debts. Source: Accenture Purpose-Driven Banking Survey, second post- COVID-19 wave, April 2020. Figure 1. The impact of COVID-19 on SME sales. Sample: 1,283 small and medium enterprises in the US, UK, Italy and Brazil,

14、 April 2020 Sales increased Sales decreased slightly Sales decreased a lot 14% 33% 54% 5 In the US in June, around 9 percent of home loans were in forbearance,9up 6 percentage points from the level seen in March,10according to the Mortgage Bankers Association and S perhaps longer if we see second-wa

15、ve infections spiking in Asia, Europe and North America during the winter. As public-sector support winds down, we expect to see a rapid increase in impairments across a wide range of asset classes. Our macroeconomic modeling shows losses peaking for banks existing credit books at 2.0 to 2.4 percent

16、, almost double what we saw at the height of the 2008 Global Financial Crisis (Figure 4). However, the scenarios are obviously very sensitive to how the public health aspect of COVID-19 evolves. 10 On the threshold of private-led debt provision Figure4. Banks cost of risk in times of crisis. 2008 Gl

17、obal Financial Crisis COVID-19 Crisis Cost of Risk Note: Analysis on 117 global banks Adverse scenario: L-shaped recovery; Baseline scenario: U-shaped recovery Source: Accenture Research analysis based on data from S Other P Peer set analyzed consists of 48 European, 17 Chinese and 27 US banks with

18、total assets above $40 bn. Source: Accenture Research analysis based on S other major markets in Europe will soon have to follow suit. However, preparedness doesnt mean immediate execution. One way in which banks could unintentionally become pro-cyclical amplifiers is by triggering asset sales that

19、then drive down the price of that whole asset class. This would create a credit quality feedback loop that leads the asset values in the sector to undershoot until equity restructuring capital starts to snap up bargains and puts a floor under them. Step 1 (cont.) Portfolio strategy and execution mon

20、itoring 21 It doesnt take long for institutional capabilities and memory to atrophy, and in many economies, we are now a decade on from the depths of the previous recession. During that decade credit management units shrank back to bare bones, so most banks will have to scale quicklyand simultaneous

21、lyto be able to handle the upcoming credit wave. Many will struggle and are likely to find that traditional methods of scaling are not up to the challenge of todays crisis. As long as the phase one public stimulus programs continue to function as a dam against losses, collections and recovery activi

22、ty may seem strangely muted. JPMorgan Chase31and Citi32have both reported that delinquencies are down or unchanged in their biggest consumer loan categories, compared to last year, and that most customers who were granted payment deferrals continued to make their payments. However, all the macroecon

23、omic and credit modelling work that we have done shows potential losses building up quickly behind the dam. When they are released by the wind-down of government support, the ability to scale collections management to meet the rising tide of defaults will differentiate those banks that handle this c

24、risis well from those that are swamped. To prepare, lenders will need to ensure that their operating model, processes, people and technology are suitably equipped to manage the surge in activity. A cost-optimized, scalable approach to default prevention, debt collection and credit recovery managemen

25、t will rely on digital capabilities that have been repurposed to help customers in these unusual circumstances. Step 2 Execution excellence: doing the basics right 22 The alternative will be to simply throw bodies at the problems, harking back to the height of the US mortgage crisis when warehouses

26、full of people spent months processing stacks of paper. That can be effective but costly. More importantly, it builds no institutional muscle that has long-term value. In order to both deal with the current crisis and build those longer-term value-adding capabilities, the execution model should cons

27、ider the short- as well as the medium-term time frames and have the following attributes: Centralized for decision making, execution and reporting. Nimble and scalable, drawing on more automation and a virtual workforce. Simple and structured, with streamlined and straight-through processing and the

28、 right documentation to comply with government requirements. Capable of cost-effective execution of treatment strategies. Flexible to adjust risk policies for alignment with recovery and exit strategies. Divided into short-term and medium-term phases, where the former addresses process improvement a

29、nd staff expansion through transfers or augmentation, and the latter includes technology enhancement. A sound execution model will be backed by highly-skilled credit and collections specialists and innovative technology capabilities. Continued investment in the right technology enablement and traini

30、ng (up- and re-skilling) will enable bank personnel to interact with customers in personalized and productive ways, and to help them swiftly. This will also give better control over the end-to-end process. Step 2 (cont.) Execution excellence: doing the basics right 23 Despite banks already having st

31、rong analytical skills and capabilities, signals from traditional sources like bureau scores and internal risk ratings are muted in the current environment. SMEs who were pristine credits, suddenly find that their business has evaporated and that this type of possibility was never factored into the

32、banks credit rating approaches. For this reason, non-traditional sources of data and the signals they provide are essential to capture the true risk of the borrowers business and environment. The increase in and acceleration of data sharing with customers will give banks even more enriched insights

33、to enhance their models for predicting risk. Rather than a big jump to the ideal state, this change will be a gradual and iterative process as confidence in the new data and prediction capabilities improve. The goal is for banks to be: Contextual and adaptive, embracing new ways of internally evalua

34、ting credit and blending them with new external data relevant to capturing the signals from the market regarding the impact of COVID-19 beyond existing risk scorecards. Data-driven, combining idiosyncratic signals that capture customer-specific risk along with systematic signals related to sector an

35、d macroeconomic factors. This will enable tailored approaches to navigating the financial challenges. It will also help ensure that new credit allows customers to remain viable, as opposed to simply delaying their inevitable demise. Proficient in advanced analytics, bringing intelligence to capturin

36、g the right triggers for early warning and execution. Relentless in automation, fully mechanizing the back office and investing in intelligent operations. Based on our experience, automation can lower back-office collection process costs by 25 40 percent. Banks that are enabled by contextual analyti

37、csranging from foot-traffic patterns in small brick-and-mortar stores to online customer reviewsand AI-powered capabilities can be truly digital. This means all their interactions and executions are cost-optimized, data-driven, highly contextual, wholly compliant, fully automated and intelligent (es

38、pecially in the back office), adaptive and virtual. It also means they gain the flexibility to replicate at speed, reaching their customers and applying strategies consistently with measurable results. Step 3 Truly digital credit management powered by data, analytics and automation Banks that priori

39、tize customer-centricitytailoring treatment strategies and delivering advice and other services in personalized wayscan be credit heroes to their customers. It means giving to mass-retail and SME customers the high-end treatment typically reserved for high net worth and corporate customers. Doing so

40、 in a scalable, cost-effective way requires human + machine enablement, where intelligent, automated machines are deployed alongside people to make work more efficient, valuable and rewarding. It ensures that frontline staff who manage relationships and serve customers are equipped with the right in

41、sights and relevant recommendations based on clients contexts. Our experience suggests that human + machine capabilities can, for example, enable agents to handle more than 120 files a day. Providing 24x7 tailored credit advice through digital channels means repurposing the data analysis and interac

42、tion support tools that banks typically use to sell more. For example, banks could leverage digital signals such as sole-proprietor search patterns related to government assistance or unemployment benefits, COVID-19 sentiment data, and online sales behavior data. Banks that effectively pivot to a hu

43、man + machine model to run their credit, collection and recovery cycles will help their people better serve customers and create more engaging customer and employee experiences. In times such as these, this kind of treatment can create enduring relationships. To do so, banks must be: Scalable, ensur

44、ing that value-adding services are delivered cost-effectively. It has often been shown that banks can achieve a 20 40 percent improvement in the productivity of FTEs working on non-core processes. Accessible, with more ways to interact virtually and continually with customers to keep them connected

45、and abreast of their recovery progress. Leveraging virtual conversations during the early-warning phase for lower-risk / low-exposure clusters can be up to 100 percent more effective. Using virtual methods to reach customers early can also increase the effectiveness of collections by 10 15 percent.

46、Attentive, enabling virtual agents and bots to always be there with instant, on-demand service when customers need itand at the same time freeing people to focus on complex problems. Personalized. The digital signals that guide bank staffs sales approaches, help them structure advice, and enable tai

47、loring of products and services will gradually become richer. They will be crucial in enabling banks to provide customers with the right support to remain viable. The zero moment for sales and the stimulus for interactions will be real-time across all channels. Macro-segmentation will be replaced by

48、 tailored, customer-specific experiences. A human + machine approach will also make it easier to reduce defects due to misinterpretation of collateral and contractual covenants by more than 50 percent. 24 Step 4 Human + machine enablement 25 As the credit crisis winds through its three overlapping p

49、hases, leading banks will constantly ask themselves: “How can we help?” Beyond getting money into the hands of consumers and small businesses, banks that change the way they work will be able to optimize the value of the money being injected into the economy. Banks need to continue their journeys to becoming truly digital and ensure their investments in digital have impact within their credit management processes. This time it will be important for them to maintain the quality of their assets and help improve their customers financial wellbeing. In phase o