Wherever there is the granting of credit or services with the hope of receiving payment after providing such, credit management will be the core feature in the success or demise of that company. In the midst of COVID 19, it is essential for the survival of those companies within the credit industry to implement efficient and effective credit management techniques to mitigate against the increased risks that are present and more prominent due to this global pandemic.
It is apparent that the COVID 19 pandemic will have an impact on the economies of our nations with damaging effects on the credit industry. The shut-down measures implemented globally because of COVID 19 led to a loss of revenue and income for many, the complete closure of business for most which will, in turn, affect the performance of existing loans and servicing of debts. Further, where cash flow and funds are not readily available for individuals to conduct business, then there will be a drawdown on what credit facilities are available to them. Therefore, many institutions found themselves having to facilitate the further extension of credit with a significant decrease in their own cash flow due to the failure of individuals and companies to pay debts during the shutdown. In the United States, it was reported that nearly 15 million credit cards were not paid in April as such, financial hardship programs with deferred payments were allowed.
In such a climate, there is a need to get ahead of potential risks and conduct an analysis of credit portfolios, noting individuals or companies that operate in sectors still viable or those that are consumer-based services that would more than likely be significantly impacted. Understanding the situation at hand is an integral step in beginning to manage credit risk to be faced by financial institutions. It may be also helpful to categorize the industries by risk grades.
Another useful step is to review the financial products being offered as this climate may require additional protection through requesting collateral for higher risk industries or higher deposits. However, in noting the preventative aspect of credit risk management, there will be an increasing need to analyse the creditworthiness of the customer that is seeking credit. It is in this aspect where credit reports which also feature disaster credit scores can aid. In reviewing the standard credit report, individuals would be aware of how a person serviced their debts previously prior to COVID 19 which can serve as a good indication as to how they will service their debts in the future, provided that they have not been significantly affected financially by the pandemic. However, if a disaster credit score is also provided this may present a better idea of how that person has been able to service their debts amidst the crisis. Company policy may then be developed to determine whether allowances would be made for those temporarily affected. Thus by conducting the assessment through an analysis of one’s credit report supported by a review of the background of the client, the industry that they are in, and whether it is one not viable in the present crisis are all measures to employ for managing the credit risks. Institutions may have to question whether the potential client has demonstrated the ability to adapt and transition to meet the circumstances.
On the other side of credit management, the recovery on credit already extended (debt management), ensuring effective consumer dialogue and communication in a manner that notes their concerns but also offers some debt management tips in the active management of their accounts can go a long way. Opening the line for dialogue and communication may ensure that attention is paid to your debts which should in turn, when circumstances permit, result in payments of your debt. As we seek to digitalize and go online, we cannot forget that human relations and interaction still goes a long way.
The world has been rocked by a Catastrophic, Ominous, Vast Immobilizing Disaster- The pandemic COVID 19.
It would appear that at the same rate this highly contagious virus has made its imprint and spread to affect over 2 million humans across the world, to date, and even some animal life, a similarly infectious effect is being suffered in all business sectors globally as a result of the measures that are deemed necessary to attempt to contain the spread of the virus. Many countries have implemented physical distancing requirements, curfews or lockdowns limiting and reducing our normal daily activities, our jobs and traditional means of trade and commerce. For many, we have already begun to feel the economic “symptoms” of this virus and with the growing uncertainty, the pressure is building. Within the financial sector, many Central Banks after reviewing the charts and noting the initial warnings signs, have sought to administer an initial dose of treatment by adjusting their policy rates to preserve the stability of the financial markets.
In Barbados, the Central Bank announced a series of measures (effective April 1, 2020) to help support commercial banks and other deposit-taking institution manage the economic fallout from the coronavirus shock. Financial institutions in recognizing the initial prognosis made for the financial markets due to the impact of the pandemic have also implemented measures to aid their customers. Some have given
Automatically upon request, a moratorium on loan payments for firms and individuals directly impacted by the pandemic and resulting economic downturn for up to six months;
An automatic three-month payment deferral on credit facilities or waivers of credit card late fees and over limits fees;
Adjusted loan terms to reduce monthly payments and improve cash flows or interest rates;
Additional credit to existing customers to address short-term liquidity challenges through a temporary increase of overdraft and credit card limits
The Government of Barbados has strategized on a number of remedies to prevent the financial collapse and rupture of the arteries of our society due to the COVID 19 pandemic.
OUR CITIZENS – THE UNEMPLOYED AND VULNERABLE HOUSEHOLDS
The government has offered an injection of much needed cash relief through the National Insurance Scheme (NIS) unemployment fund to aid those who would have been laid off due to the measures to address the spread of COVID 19. Further, a $20-million Household Program was launched to help approximately 1,500 vulnerable families as identified by the Household Mitigation Department. Under this stimulus package, the government will be able to provide $600 per month to each family through the Welfare Department and a 40 per cent increase in all rates and fees paid by the Welfare Department to individuals. There has also been a call by the government on the private sector and those families that earn more than $100,000 annually to also assist through the Adopt Our Families’ programme launched at CIBC First Caribbean Bank.
OUR BUSINESS SECTOR AND EMPLOYERS – THE IMMOBLISED For business, there is the launch Jobs, Investment and Business Survival Programme, to assist those businesses whose operations have been immobilized by the COVID-19 outbreak through investment from Government to renovate and upgrade for the re-opening of their businesses. For those employers who would be seeking to also cushion the impact for their employees, the National Insurance Scheme employer’s contributions would be waived for businesses that retain three -quarters of their staff for three months with the preparation to extend in the event that crisis continues beyond the three-month period.
OUR HOTEL AND ENTERTAINMENT INDUSTRY – THE DISRUPTED With specific reference to the hotel sector, in light of the expected downturn in the tourism by as much as 80%, the government will refinance the Small Hotel Investment Fund with $20 million to allow small hotels to borrow “and blend with other funds” and refurbish their properties during the down period, and they will pay an interest rate of 3.5 per cent instead of five per cent. This fund was initially established to assist small hotels with marketing, management, procurement of joint services and refurbishment
In its General Press Release of the 30th of March 2020, The Central Bank of Barbados indicated that its measures coupled with those of the Government and the commercial banks represent a multi-pronged response to dampen the effects of COVID-19, and should help to preserve financial stability and enable a faster turn-around in the economy once the crisis is over.
In reviewing the reports and prognosis for our economy, it is apparent that our recovery from COVID 19 requires a holistic approach. While we implement measures of physical distancing, following along a quote by Jon Bon Jovi, we are as strong as our neighbour and therefore we are our brother’s keeper. We need to Collaborate Overcome Virtually Innovate and Deliberate, together to tackle COVID 19.