Build up restructuring, loan resolution and NPL management capabilities
zeb supports you in portfolio analyses and in the development and short-term implementation of an action plan, including the design of internal processes for
- identifying exposures at risk of default
- intensive support and
- loan resolution
zeb also offers support in outsourcing problem loan processing to external service providers and in planning and executing portfolio transactions.
Ideally, banks’ concessions to borrowers with financial difficulties (“forbearance measures”) and recourse to government support programs should prevent a significant increase in problematic and non-performing loans. Realistically, however, a prolonged paralysis of the economy will inevitably lead to a considerable increase in payment difficulties, despite expected government interventions. Even under the assumption that fundamentally healthy borrowers (both private and commercial) will be protected by government programs where required, for an underlying set of structurally weak borrowers, the current coronavirus crisis will be the final trigger for migration into the NPL portfolio.
The challenge for banks will be the clear and early identification of those borrowers that can be treated as structurally sound, and for whom restructuring measures, potentially beyond government programs, hold promise. To address this challenge, banks require the appropriate methodology and competency to make decisions systematically, quickly and efficiently, even as the number of cases increases, as well as clear processes and qualified employees who can look after customers during such periods of intensive support. Banks should also prepare themselves both in terms of personnel and processes for the expected increase in the number of loan resolutions.
In addition to the necessary competencies for internal processing, an increasing number of cases is likely to raise the question of outsourcing problem loan processing for many banks. Options include cooperating with specialist service providers as well as the transfer/sale of non-performing and sub-performing loans or potentially severely affected sub-portfolios. Besides the relief brought to the internal organization, these sales often have a positive effect on RWAs, liquidity/funding, etc. However, many banks reduced or completely discontinued related activities during the financial crisis and today no longer have the expertise necessary to structure marketable transactions with an appropriate balance between investor interests and expected portfolio value development.
The level of urgency depends on the individual portfolio, the scope of government support measures and the extent and success of forbearance measures. In the short term, the level of urgency for most banks can therefore be classified as medium, but if the crisis continues, it will increase significantly.
The number of new cases for intensive support or problem loan management will depend to a large extent on how long the coronavirus crisis significantly inhibits economic activity. Furthermore, the extent to which government aid is granted (especially for SMEs) and the framework created by legislators (e.g. suspension of rent payments under certain circumstances) will be a decisive factor.
First and foremost, the intensive support and problem loan management areas of a bank are affected, as they will have to deal with the expected increase in case numbers. Furthermore, the topic is of interest to top management given its direct P&L impact. The creation of simulation scenarios for portfolio development and the development of tactical measures continues to involve the risk management, finance and regulatory reporting departments.