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How to Prepare Your Financial Institution for Pandemic Related Loan Delinquencies

June 09, 2020 by Adam Craig

In the last few weeks there’s been a shift in the media coverage on the banking industry.  Stories about pandemic planning, how to communicate with customers during this unprecedented time, and stimulus deposits have been replaced by a litany of articles on banking’s “new normal”, the importance of digital banking going forward, and the potential for rising losses resulting from loan delinquencies.  This last item has caught my attention recently given the number of payment forgiveness and loan forbearances financial institutions have made in the last three months.

Rising credit losses from loan delinquencies has banks concerned

Pandemic related loan delinquencies are affecting all lending types.  According to an article published two weeks ago, nearly 5 million mortgages are currently in forbearance, which is almost 9% of the total number of outstanding mortgages in the US.  This number is predicted to rise through June, and could end up close to 12%.   Loans in forbearance total $1 trillion in unpaid principal1.  These figures represent only mortgages.  When you add auto loans, student loans, personal loans, and credit card balances, the amount of debt in forbearance and at risk is almost unfathomable.

Given that more than 40 million consumers are currently unemployed, and only 47 percent of American adults have enough savings to cover just three months of expenses, it’s not surprising to see the large numbers of loans in forbearance and rising credit card balances2.  Most banks and credit unions have graciously put consumers first over the last three months, offering forgiveness to virtually anyone who asked for it.  As the economy begins to re-open, banks are looking at the mounting piles of debt with concern.  Financial institutions have a number of options at their disposal, including extending forbearances or reinstating interest on loans while still allowing customers to skip payments.  The biggest challenge FIs have right now is identifying which consumers truly need these programs and forecasting the financial impact and potential losses.

Financial data can shed light on the magnitude of the loan delinquency problem

A recent Bloomberg article described the challenges financial institutions are facing in determining how many customers are truly unable to keep up with expenses during the coronavirus pandemic.  “My belief is losses aren’t coming until the third quarter for banks,” Ira Robbins, CEO of Valley National Bancorp, said in an interview. Because banks granted deferrals to pretty much everyone who asked for it, “we have no idea, outside of hypothesis, as to what’s going to happen from a credit perspective.”3. 

Financial institutions have two key challenges to address regarding loan delinquencies:

1. The sheer number of deferrals that were issued, often as many as 15% of the loans in a portfolio, will be difficult to manage and delinquencies will likely result. 


2. Most banks and credit unions do not know which consumers on a deferral program are working and took advantage of the programs, which are collecting unemployment and not working, and which may be headed back to work.  The number of loan delinquencies for those in this group is harder to predict.

Banks and credit unions are desperately reaching out to credit bureaus and financial data aggregators in the hopes that they can stitch discrete pieces of data together to find the answers.  Using data to help provide the answers is the right idea but turning to third parties isn’t necessary; financial institutions already have the necessary data to more accurately predict loan delinquencies.

Segmint’s “Vital Signs” reporting provides the answers banks are looking for

Segmint first created the “Vital Signs” report in March to enable financial institutions to identify and reach out to customers who needed help at the outset of the COVID-19 pandemic.  The report examines the changes associated with payment inflows and outflows at an account level, correlates data insights (“Key Lifestyle Indicators”) residing within the Segmint platform, and indicates which customers may need help and what products and services to offer them.  Data in the “Vital Signs” reports includes:     

     - Trending Average Daily Balance
     - Total Monthly Deposits / Income (either ACH / Direct Deposit or cash via Teller)
     - Hardship Savings Withdrawals
     - Hardship Deposits - Unemployment and Payday Lending
     - Competitive Payment Trends (Mortgage, Credit Card, Auto)
     - and more…  

The “Vital Signs” report can be useful in many other ways, including answering the questions of which consumers are working and took advantage of a loan deferral program, which are collecting unemployment and not working, and which consumers are headed back to work.  This will enable a financial institution to bucket consumers into segments based on likelihood to pay, model the total potential portfolio loss that may come from delinquencies, and develop pricing and communication strategies for each segment. 

Although turning to data is a step in the right direction, finding the right platform that can help institutions derive actionable insights from that data should be the ultimate goal. The pandemic has brought into sharp focus the need to be armed with the right information — it’s all about the data. The answers financial institutions seek regarding loan delinquencies lie within their own data warehouses, waiting to be discovered.

For More Information

For more information about how the Segmint Vital Signs report can help your financial institution more accurately predict future loan delinquencies, contact us at 888.734.6468 or



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