No such thing as a free lunch
One of the most striking differences between the 1990s recession and the present Financial Crisis has been the way that banks, building societies and other lenders have dealt with customers facing financial difficulties. This time round, lenders have made greater use of forbearance strategies, granting concessions to customers, both consumer and corporate, in actual or apparent distress to avoid, where possible, the pain of collecting on the debt.
However, our analysis shows there may be hidden costs and additional risks to forbearance.
- Operations teams face a whole new set of complex challenges to balance short term gain with longer term costs and heightened risks.
- Ill-considered use of forbearance can place customers in further financial distress worsening their financial position and treating them unfairly.
- Impairment accounting and disclosures become trickier.
- Returns on capital may be lower, new business volumes may be constrained, and prices may rise for all customers.
There are ways to reduce the costs and mitigate the risks, Read our article as we discuss how forbearance is far from the free lunch it might seem at first glance.
Loan forbearance (PDF)