Febelfin and BeGov measures put operational credit departments under stress

Covid-19: Measures taken and change management

Febelfin and federal government measures

Impact on operations and project delivery

Importance of Agility

The author of this articleOlivier Uyttendaele and Pieter Van Brussel - Project Managers at TriFinance Financial Institutions
Febelfin and the federal government announced measures to prevent the health crisis from turning into a financial crisis. In short, existing loans can be deferred for 6 months, while new bridge loans receive state guarantees for 50 billion euros. These measures are highly needed to support the households and companies. However, for the banks, they also pose some challenges.

What is intended through these measures?

Before, the federal government already took some measures.

  • First, they announced technical unemployment for employees working in companies that had to be closed, which reduced the salary costs for the employers.
  • Secondly, it was possible to defer tax payments.
  • And now, on top of those actions, the federal government together with the banking sector tackled the financial costs.

The banks committed to support financially healthy households and companies through the crisis. They will do this by allowing companies to defer their loan payments (capital + interest) for 6 months. Also households can push the pause button on their mortgage repayments. Furthermore, they will grant new loans which are backed with a state guarantee of 50 billion euros. The first 3% losses will be covered by the bank’s capital buffers, whereas losses between 3% and 5% will be split 50/50 between the government and banks. Losses higher than 5% will be taken for 80% by the government with the remaining 20% for the banks.

The plan itself and the speed at which it becomes active poses many challenges for the banks.

How to organize this operational challenge?

These measures will have an impact on the day to day operations. It will be an important and urgent challenge for banks to organize their operational departments to cover the client’s requests.

Each request will have to be reviewed by a credit analyst. As Johan Thijs, Chairman of Febelfin and CEO of KBC, stated: “A household with 25k in savings, will not be eligible for deferred payments for a loan of a few hundreds euros”. Banks will have to create a decision tree based on which a deferral request will be accepted or rejected.

As always, the devil is in the details. At this moment it is not yet clear what needs to be taken into account. Can a customer with little cash savings but with a huge stock portfolio receive a referral? Or do we expect the client to liquidate the stocks? Many more special cases can be thought of. It will be important for the credit departments to have a flexible approach and quick decision making without formal validation by several committees.

Most banks run stress tests for different scenarios that test the capital buffers and other financial parameters. This crisis teaches us that an operational stress test would also be useful. Incorporate scenarios such as remote working as from now in the Business continuity planning (BCP).

Social distancing measures create new issues

It will also be difficult to introduce the new process and procedures to a workforce that is working remotely. Besides good online training and explanatory sessions, team alignment will be crucial to make sure that the process works. The social distancing measures also create other new issues. Changes to a loan and to the amortization tables require the customer’s signature. For many banks, this is still a paper process which requires your customers to go to an agency. Is this something you want to ask your clients in this crisis? The Corona crisis in China taught us that digital banks scored better as they were more connected to the digital ecosystem.

A lot of the uncertainty is also caused by the lack of forecast. How many customers will ask for a payment deferral? Which volumes can be expected in the operational departments? Can it be tackled with the current staff or do we need to hire extra operators? Can we (partly) automate the process? Should it be fully automated with a link to the core banking systems? Or can a robot (RPA) help?
Our suggestion would be to start with a pragmatic manual process. If the backlog becomes unmanageable, hire additional staff to manage the straightforward cases so internal staff can focus on their priorities and start looking for a more robust solution. A frequent evaluation of the backlog and the chosen approach is advised.

Close and flexible collaboration between business and development teams

The impact of the measures taken by Febelfin and the Belgian government also have an impact outside the operations department. Many adaptations required will have an IT impact, which influences banks’ portfolio management, ongoing projects and release plannings.

It will be important for ‘change’ departments to be flexible depending on the business needs. If the volumes remain low, full automations might not be necessary. Smaller service requests could be sufficient to assist the operational departments. For example, the deferral of loan amortizations which entails both capital and interest. This can be solved by executing small changes in a database, or by building a new product or technical process. And even this process can be done manually, semi-automated or fully integrated. This decision is based on the analysis of the number and complexity of the requests.
If the new inflow grows larger or new requirements would be more complex, development teams should be involved more.

To be ready, it will be important to decide which projects in the portfolio have the highest priority and which projects can be paused. Even though a development team could have time left to work on a lower priority project, the bottleneck could present itself later in the project lifecycle. Test teams could be overwhelmed, or having several lower prio changes could make the life of release management more complex.

Agile methodology will help you manage this crisis situation

Flexibility and maintaining focus on the developments and projects with the highest priority, are base principles in Agile development. So even if you're not working according to this methodology, its values can be used to manage this crisis situation. Because in general, Agile is most often pitched as a solution for focusing on customer value. But also, agile is as much a way of working that minimizes risks and best fits a situation which deals with many uncertainties. By continuously building and shipping small increments to your product, you minimize the impact if big changes occur.

We believe it is in the best interest of the organisation to make sure that developments done now are constantly aligned with the situation on hand, meaning assessing frequently what is the most urgent, and going for the quick wins, the changes that are doable in a short sprint of time to create the most and fastest value for the lowest risk. Keeping in mind that developments identified, don’t impact the business as usual processes and ensure that continuity is guaranteed. Projects that take longer in time and release all value once everything is done, will have a hard time returning on investment and will more than likely have a lower impact. So thoroughly investigate what is needed and release IT changes more frequently and remotely

A continuous delivery pipeline to lower (health) risk and increase value

Not only is it a good time to frequently review the projects portfolio, it can be argued that it's also an excellent exercise to see how the organisation is delivering its developments. It’s not uncommon that banks still require large numbers of people on-site to put a major release in production. Not only is the current health risk high as it contradicts the measures of social distancing, it’s in general also not the most efficient process and will jeopardize the release of the important IT changes.

We suggest to keep the releases small and easily manageable with limited presence on-site. This will not only minimize risks but provide great input for some best DevOps practices that can be used when normal (business) life returns. More specifically an accelerated development of a continuous delivery pipeline with continuous deployment and as much automation as possible.

Value the agility of your people

So far we’ve discussed the operational and IT impact. Last but definitely not least, our final advice is to value your people. We see now that flexibility and responsiveness is requested from the workforce and, when given the opportunity and responsibility, team members are willing and motivated to make it work. Assist where needed, take up other tasks outside their scope and respond to the increased demand in other specific areas. You feel their drive to survive this crisis together with the whole company and come out stronger afterwards. It might be an ideal time to see who has the skills and/or talent to take up other roles which can help you as well to create multifunctional teams afterwards.

In essence, we believe that many of the values, principles, practices and processes of agile frameworks can support banks in challenging times, enabling them after the crisis to speed up their agile transformation with valuable first-hand lessons learned.

At TriFinance, we have the expertise to support you in dealing with the impact of these measures. Clients ask us to reduce their backlogs, create new process flows and manage their projects and portfolios. We are able to assist you and your teams, so please contact us when facing this need.

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The author of this articleOlivier Uyttendaele and Pieter Van Brussel - Project Managers at TriFinance Financial Institutions

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