Rising non-performing loans. Limited credit availability. A seemingly immovable unemployment rate. For many in the European Union, “business as usual” simply isn’t.
The Eurozone crisis, which has perpetuated since the European bank bailouts in early 2009, triggered fundamental shifts in the financial market infrastructure. Besides the economic impact and damage to their reputations, EU banks have had to learn to operate in a new world.
The aftereffects of the credit crunch are many. Knowing the most important ones can help you prepare your organization for continued uncertainty.
European Banking is More Regulated, Placing Limitations on Lending Power
Damaged reputations and balance sheets post-financial crisis have led to external scrutiny by the government and general public. Wary shareholders and depressed financial markets have led to new regulatory rules, such as Basel III, that impose stricter capital bases and require more rigorous credit analysis. The lending ceiling has been lowered, and the hunt for “zombie banks” is far from over.
Despite fears that regulations will destabilize financial markets, the European Banking Authority, European Central Bank and national regulators are pushing ahead with efforts to identify problem banks. Struggling institutions will need to raise more capital, or be shut down. Banks that survive will be those that can drum up capital through the sale of investment shares, dividends restriction or internal restructuring.
Reducing Credit Losses and Maximizing Collections are Key to Profitability
Constrained credit and rising levels of consumer debt threaten banks’ profitability. Increasing collection costs, growing bad debt write-offs and the requirements for higher provisions against loan losses make managing credit loss a key business driver—one that has a direct impact on profits.
As a result, credit risk management has become an urgent issue for banks, regulators and auditors alike. Banks must develop more diversified business models than those of the past, which relied on high levels of liquidity funding and ready access to low-cost capital.
The realities of an increasingly complex business environment, where many customers have multi-product, multi-debt relationships with their banks, also require that institutions move toward an integrated, customer-centric approach to the management and collection of delinquencies.
Operations, and Supporting Technology, Must Become More Flexible and Effective
Collections and recovery managers face an increasing number of non-performing loans, and lack the time and staff to manage them. Furthermore, current tools miss key insight into certain stages of the loan lifecycle, and many fail to offer a streamlined way to manage and communicate throughout the collection cycle. Efficient debt collection and recovery solutions are essential to maximizing profitable return on efforts.
Within the new business models, there is a need for more proactive, effective collection and recovery strategies. These strategies must make full use of today’s flexible, responsive operational and IT systems to deal with new, emerging risks in the loans market—and embrace legacy functionality to deal with risks inherited from earlier years.
It’s been five years since the financial crisis, but Europe continues to grapple with its impact. Moving on will require continued efforts to stabilize financial markets and reinvigorate economies, combined with more fundamental shifts in the way banks lend, collect and profit.
What other effects of the credit crunch are you dealing with? Let us know in the comments section below.
Learn More About How to Capture Profit in the Post-Crisis World
To dive deeper into these new requirements and best practices in banking collections and recovery, download our free whitepaper, Collections and Recovery: Meeting the Needs of a Changing World.
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