By Steve Cocheo, Executive Editor at
The Financial Brand
The COVID Slump is a very different recession. In some ways, it's
nobody's fault. But an Accenture expert says that a careful balance is
needed from lenders because it is possible for even a well-intentioned
move to make the situation far worse. A key suggestion: Avoid any credit
policy that looks like a 'blunt instrument.'
The challenges of the COVID-19 recession for lenders have not yet
begun to bite in earnest, but banks and credit unions are going to start
feeling it soon, according to an expert from Accenture.
The impact on credit of all kinds is going to be felt in different
ways depending on the makeup of each financial institution’s portfolio
and on the demographics of their consumer and small business borrowers.
But as the summer of 2020 moved into fall, the Novocain was wearing off
on the recession pain as certain credit relief efforts tailed off and as
the impact of multiple stimulus programs ended.
Now lenders will begin feeling a nonperforming loan
crisis that will differ from anything seen by most people in the
industry today, with the exception perhaps of the oldest credit
veterans. This recession’s impact on credit isn’t something that can be
blamed on greed, bad credit modeling, overly aggressive marketing, the
madness of crowds nor any of the villains of most crunches in memory.
Shutdowns introduced to avert the spread of coronavirus slammed the
emergency brake on a economy that still pointed to prosperity.
This overall view of where financial institutions stand comes from a
report by Accenture and other sources. Chris Scislowicz, Managing
Director of Accenture’s financial services practice, and Head of North
American credit practice, told
The Financial Brand that
many lenders, with the exception of the very largest, are only now
beginning to get a handle on where they stand on the credit side and
what is likely to come.
Lenders Are in the Calm Before the Credit Storm
“The looming nonperforming loan crisis is going to manifest itself
differently across consumer segments, across industry segments,” says
Scislowicz. “It’s going to affect consumers, homeowners, small business
owners and large companies.”
“The looming nonperforming loan crisis is going to
manifest itself differently across consumer segments, across industry
segments. It’s going to affect consumers, homeowners, small business
owners and large companies.”
— Chris Scislowicz, Accenture
An Accenture report, “How Banks Can Prepare for the Looming Credit
Crisis,” states that “We are in the calm before the storm, the moment in
which payment holidays are not flowing through into consumer credit
scores and where underlying business health is being masked by furlough
and payroll protection schemes.”
That calm is ending, according to Scislowicz, and many financial
institutions are figuring out where they stand. He explains that the
drain of the Paycheck Protection Program and forbearance programs on
lenders’ attentions and energies cannot be overestimated. In many
organizations each stage of the PPP, the Main Street programs and more
combined to divert staff and time away from more analytical tasks due to
the nature of the health and economic emergency.
“The implications for the industry were pretty profound,” says
Scislowicz, “in terms of pulling people off the line. But now the folks
with key responsibility for portfolios are starting to take a hard look
at things. They are asking, now that programs are winding down, what it
means for their books of business.” While issues have already surfaced
in commercial lending, that will be expanded as consumer credit
forbearance begins to go away.
Here’s what to watch for: “I think the August
numbers will give us a sense of what we might expect for the rest of the
year,” says Komos. “That’s my preliminary assumption.”