By Juliet Neguwon
Banks operate in a strictly regulated environment and every borrower, whether as an insider or the person from the street, must meet their financial obligations to their bank. This is because banks operate with customers’ funds which must be available on call.
Business Focus recently reported that the NPL of 25 banks in Uganda had reached Ugshs.1Trillion which to some extent is attributed to the Covid 19 crisis that caused revenue loss resulting from disruptions in businesses globally. The impact of the pandemic further deteriorated borrowers’ finances hence affecting servicing of loans with some previously (before Covid 19) now defaulting.
In spite of the above challenges, one of the key strategies among others for financial institutions, creditors and those involved in credit business to implement is to quickly find solutions of treating the root causes (not just symptoms) of customers’ late/delayed loan repayments or non-repayment. Often times, these root causes stem from the institution’s or organization’s internal factors compared to the external ones. What remains crucial though is correct diagnosis.
To reduce NPLs, paying critical attention in the following areas is key:
- Shifting from the Traditional Pre-Covid Debt-Loan Collection Style to the Modern Post Covid Debt Collection-Recovery Method in order to effectively collect from distressed borrowers especially those whose businesses are still struggling to recover.
- Investing in Practical Debt-Loan Collection Skills training to enable the collection team acquire in-depth understanding, knowledge and practical skills preferably by trainers with hands on experience. Untrained collectors collect through trial & error figuring out things.
- Learning to develop more Holistic Debt-Loan Collection-Recovery Strategies that are not just effective or proactive bearing in mind that a lot has changed since Covid.
As the economy bites harder in these tough times, it also serves as a wake-up call to financial institutions, banks and companies involved in the business of credit sales including those owed monies to understand that getting paid promptly in this Post Covid era, is no longer a business as usual activity. It will ultimately require efforts in re-positioning and re-aligning your overall collection strategy including the collection teams’ level of preparedness, ability and commitment in reducing and controlling NPL.