Institutions need to prioritize the protection of their employees and clients in the offices that remain open. According to the WHO’s advice on getting workplace ready for COVID-19, there are several pillars, which help to prevent the spread of  infection in the workplaces:

• Thorough cleaning of workplaces, transit and contact areas, equipment used by employees and customers, and all surfaces and objects;
• Protective equipment for personnel: face masks, protective gloves, and sanitizers;
• Social distancing: minimum 1.5-meter distance between people, plastic/glass screening shields (separators) between employees and customers, and limited number of meetings and visitors in the premises
• Social awareness: billboards promoting good hygiene, cashless payments and distant services

BFC observes that many institutions have already implemented such measures early in March 2020, and therefore have adequate OSH protocols in place. For institutions that have not done so yet, it is highly recommended to follow national or WHO recommendations and updates.

For continuity of operations, where feasible, employees may need to work from home for some period. This implies operational and technical challenges that institutions need to address.

Most typical challenges:

• Lack of proper equipment at home
• Requirement of extra software
• IT security protocols not updated

In response to the challenges, it is important for financial institutions to:

• Scale and test VPN concentrators/gateways required for remote employees
• Evaluate the help desk capacity experiencing an increase in inquiries
• Assess needs in upgrading software by internal IT capacity or external vendor
• Fix possible gaps in video and audio teleconferencing bridges/size limits of the cloud-based storage
• Ensure compliance and update requirements for remote customer identification

BFC estimates that most financial institutions will be able to set up such measures individually. Guidance and gaps identification is potentially available.

Financial institutions should expect that many clients will find it difficult to meet their contractual obligations. Due to this, many financial institutions have already introduced emergency grace periods on loan repayments. Many governments have also followed with temporary relief on such payments.

At the same time, BFC believes that while temporary decisions have been taken, an extra emergency portfolio management measures should be started in parallel:

• Risk assessment of the portfolio – understanding concentration of the highest risks, stress-testing on possible defaults for particular customers or customer segments
• Evaluating extra efforts needed based on the conducted analysis - this is relevant for both efforts of staffing, and extra costs that may increase due to growing NPLs
• Defining a pool of standardized actions to be applied for various segments with similar risk profiles

It is important to follow tactics but not a rigid strategy – portfolio decisions made nowadays should be short-term and flexible for their adjustment based on changes in the market.

Health risks associated with the current crisis, as well as expected economic impacts affecting jobs, call for a number of emergency HR actions and active communication with employees. Apart from addressing health risks (see separate recommended actions), there are several priority measures that MFIs need to take to ensure efficient distance working and dealing with staff that is unable to work in this period:

• Development of an internal communication strategy during the crisis
• Ensuring effective exchange of management decisions and employee feedback
• Emergency analysis of staff activities and identification of “functional gaps”
• Re-defining of staff duties and responsibility delegation principles
• Establishment of temporary KPIs or efficiency assessment criteria
• Having clear procedures and communications for staff that gets infected
• Communicating to employees about potential part-time work and/or forced vacations

COVID-19 will have different impacts on various types of industries and borrowers. In order to identify risk clusters in the loan portfolio and estimate the level of the effort required from financial institutions to work on mitigation measures, BFC is ready to support with the following measures:

• Portfolio analysis and identification of risk hotspots
• Risk mapping and risk classification of the borrowers
• Forecasting of losses in different customer segments
• Stress-testing of the loan portfolio
• Development of the projection scenarios

BFC’s experts have applied these approaches during past crises during 2008-2015 in numerous developing markets and have accumulated a comprehensive background applicable for the challenges in 2020.

Restructuring of the loan portfolio is the next important measure after completion of portfolio segmentation and classification. A typical challenge for financial institutions in crisis periods is the need to provide full-scale support for numerous borrowers experiencing problems with loan repayments. Using BFC’s expertise in addressing these needs, financial institutions may receive advice to:

• Develop a wide range of restructuring and refinancing tools
• Identify the most suitable tools for groups of borrowers based on their risk classification
• Implement prompt and standardized decision-making models and authority levels

An important condition to be maintained in this process is ensuring that the level of effort needed for restructuring actions is manageable, unified and does not overload financial institutions with making case-by-case decisions.

Note! Restructuring tools are not limited to “typical” grace periods and changing the repayment schedule. Any approach related to structure of collateral, guarantors, financial covenants, legal obligations, structuring of the financing facilities may be applicable.

When anticipating an increase of delays in loan repayments, a financial institution has to find the right balance between supporting customers in trouble and recovering the loan portfolio. Collection strategies that successfully worked in the past will not be applicable for the challenges in 2020.

An upgraded and redefined “soft collection strategy” should be considered. BFC is ready to support here with:

• Collection strategy development
• KPI and incentive system development
• Selection, training and coaching of soft collection staff
• Reporting and monitoring of the collection process

On a separate note, BFC would highly recommend to revise the existing collection scripts with the borrowers, and develop scripts which consider the special features of this crisis and pain points suffered by customers.

Financial institutions will likely face a deterioration of borrower repayment capacity, which will likely increase the level of non-performing loans (NPLs). BFC is ready to assist MFIs with the following measures for managing the portfolio at risk:

• Checking available reporting capabilities and their adjustment
• Overdue portfolio analysis and appropriate segmentation of sub-performing and non-performing loans
• Classification of the NPLs according to various breakdowns
• Identification of measures that should be taken for each classified NPL segment
• Development of the scope of actions required for each NPL segment and approval rules for their undertaking

Strengthening the IT infrastructure and overall digitalization of the processes has now become a vital necessity for financial institutions to continue business. BFC with its significant experience in developing loan processing applications, tablet lending and CRM, would recommend financial institutions to invest efforts into the following urgent measures:

• Optimisation and/or development of loan application software with the purpose to reduce manual activities and accelerate loan processes
• Introduction of the remote promotion and sales channels addressing the needs of target customer segments
• Implementation of the CRM and ensuring proper tracking of any contacts with customers and strengthening leads generation
• Review and upgrade internal communication channels

Since duties of the staff may be amended, it is important to update the requirements to employees and find new models which meet new criteria of the assessment of staff efficiency. Likewise, a financial institution should be prepared for optimisation of staff without harmful impact on everyday operations and servicing of customers. BFC recommends ensuring the alignment of new business planning with the HR strategy by addressing next issues:

• Assessment of the workload per employee, business and regional units
• Identification of duties redefined as a first response to the crisis and quarantine restriction measures
• Evaluation of possible scenarios for staff optimisation, modelling full-time and part-time involvement
• Modulation of the staff optimisation impact to the key business using a few strategies (e.g. loan portfolio drop/growth, increase of the NPL)

Despite measures aimed on the staff optimisation, it is necessary to update approaches in HR management, including:

• Development and/or update of the job descriptions reflecting new tasks and duties
• Update of the KPIs and reinforce them with respective insensitive system

Challenges triggered by COVID-19 are also an opportunity for financial institutions to focus on the development, upgrade and strengthening of the risk assessment tools. BFC recommends to start with the risk assessment of the whole portfolio addressing the following issues:

• Identification of the variety of the risk factors, which affect the loan portfolio
• Classification of the portfolio at risk by different criteria as decision-making authority, financial indicators in the pre-crisis periods, re-assessment of the collateral value, and other numerous criteria.

A key task for this exercise is to receive good statistical data on the loan portfolio. This data should be used for building and testing credit scoring or risk rating:

• For under-performing loans and NPL portfolio
• For portfolio at different levels of risks and the one impacted by lockdown measures
• For existing customers, which request renewals, limit increases

The outcome of these actions could be better risk assessment tools, which institutions may use both during and after a crisis.

Existing lending processes and policies may be unusable now, requiring a significant re-adjustment. In previous projects affected by crisis situations, BFC focused on several re-design measures that we see relevant for current challenges:

• Set-up of centralized underwriting for micro and retail lending
• Separation of staff duties in order to establish a high-level of specialization
• Establishment of a “credit factory” approach
• Implementation of centralized collection

Each of the above steps should come a diagnostic of the existing operations, including:

• Credit process audit
• Decision-making audit
• Sales process audit

BFC considers that a training approach should be implemented in close compliance with business requirements and specific operating models of individual financial institutions. In other words, employees should be trained for skills they will actually require, also keeping in mind general best practices.

• It is important to identify training channels. BFC has invested efforts into the development of an e-learning solution. This approach allows to deliver training by efficient use of employees’ working time, form a clear structure of the training topics, and to regularly monitor training and testing results.
• A multi-layered training approach should be established. This means that specific departments and business lines should have previously planned and scheduled particular training measures. The learning must be continuous, but not occasional.

Even if digital solutions were previously not a priority, in the post-crisis business model, the financial institution has to redefine its IT strategy and identify the most needed solutions. New digitalization efforts have to be considered from two angles: solutions required for customers and solutions needed by the institution. BFC’s experience in the implementation of digital tools has proved that well-timed solutions are helping institutions to be more resilient to unexpected challenges like COVID-19. Digitization examples may include:

• B2CB2B platforms for providing financing in partnership with vendors of different products
• Tablet and remote lending
• Loan application software, which significantly increases efficiency
• Web-based technical cards for agriculture business
• CRM or other alternative leads-tracking and sales management tools