The imbalance we suffered in the financial industry due to the COVID-19 pandemic led us to accelerate a transformation that seems to have no return. Forecasts warn us that it will be a slow recovery, the increase on defaulting has been a common issue for Latin American banks and we expect some volatility in portfolio performance when government aid ends due to the challenging macroeconomic environment. The crisis arrived unexpectedly and, according to the ICM consultancy, the tip of the iceberg is barely visible in terms of the consequences of the pandemic.
“In all countries, without exception, the fiscal situation has deteriorated and the level of general government indebtedness has increased. In the current situation, this indebtedness is expected to increase from 68.9% to 79.3% in the GDP between 2019 and 2020 at the regional level, which makes Latin America and the Caribbean the most indebted region in the developing world.”, specifies the report “Financing for development in the era of the COVID-19 pandemic” and after, from the Economic Commission for Latin America and the Caribbean (ECLAC).
As we immerse ourselves in the new normality, it becomes more obvious that the actions we have to follow must be aimed at safeguarding debtors and proposing solutions that consider not only recovery but also customer loyalty.
During the pandemic, bank debtor support programs have been key to help mitigate the negative effects of the crisis and contain delinquency levels. They aren’t yet overflowed despite the rising trend. Besides, the governments gave economic aid packages -with fiscal policy tools, tax exemptions, money and food funds- and the payment of part of the salary for workers in private companies. The idea was to control the ravages of the crisis both in workers, SMEs and large companies.
The performance of accounts receivable portfolios is gradually recovering pre-pandemic level, but it remains exposed to the pace of economic recovery and the prolonged impact of lower consumption. Between 20-30% of the portfolios requested some type of renegotiation during the peak of the pandemic. This number is expected to increase.
The economic recession in the region, defaulting, bank intervention and company closures will continue to worsen in the upcoming years.
However, quarantine and social distancing were the catalysts for the digital transformation we needed in the financial sector. The capacity for reaction and innovation has increased. The next step is to provide solutions that ensure the health and relationship with the debtor, optimize the processes of recovery, and have an impact on reducing defaulting.
What other changes do you think we need in the post-COVID-19 era of financial industry?