Coming credit crisis: How credit unions must prepare
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.
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