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HOW WILL LENDERS TREAT THE FINANCIAL SYMPTOMS OF COVID19?

FINANCIAL

COULD the coronavirus pandemic spark a financial crisis similar to that which was seen in 2008? Tim Kirby, Group Commercial Director of the global fintech Monevo, a personal lending marketplace and platform, discusses how Covid-19 could play out for lenders.

The 2008 financial crisis, explains Kirby, was about credit over-exposure. While strains are apparent in the money markets today, it is not 2008, when risky mortgage investments in the US banking sector and into the UK caused everything to collapse.

Kirby said: “The financial crash was self-inflicted for many reasons, including poor income verification, poor credit quality assessment and poor employment verification (self-certification). It was asset-backed predominantly as it was led by sub-prime mortgage lending.

“My thoughts are that once the virus is contained, the economy will most likely turn back on within a few months, however recovery to current levels will be somewhat longer.”

Kirby predicts that it is very possible this downturn will be shorter than the 2008 financial crisis based on a number of factors.

He said: “The financial crash was either at a house purchase level or encouraging debt consolidation through re-mortgaging that placed unsecured debt into secured debt over a longer term. The consumer then ramped up unsecured debt again with the same poor assessment applied and eventually ran out of headroom.

“This was propped up by the capital markets and warehouse funding lines being supported through securitisation models that rated the loans held in the bonds as AAA.”

Kirby adds that the coronavirus outbreak is more micro and consumer-led than the recession was.

“There is still a great deal of uncertainty, but consumers are certainly going to experience affordability difficulties in the short-term, perhaps three to six months,” Kirby explains. “Lenders are already tightening their criteria and that could lead to more tactical initiatives being introduced.”

Kirby points to the potential introduction of black-listing certain occupation types most affected, and reducing opening balances to applicants that they are most prepared to lend to.

He said: “At Monevo, we have been speaking to lenders who are predicting a 50% slow down, with some pausing to assess short-term strategies, as clearly there are aspects of credit / risk scorecards that aren’t working at the moment.”

Kirby also adds that access to capital markets will be a challenge in the short term: “Lenders who don’t lend off balance sheet may become constrained and you would have to question the Peer-to-Peer lender impact as the returns and appetite of investors could be under threat.”

“Additionally, those lenders nervous about funding certain cohorts of consumers, now have those very same consumers currently in their loan books.

“So, for lenders, focussing on forbearance and other support activity to protect these consumers in the short term of 3-6 months, will be a priority.

Kirby takes the view that it is important lenders relieve some repayment pressure from consumers in the short term, so they can rehabilitate when the new normal arrives.

“Lender feedback in the last week is that they haven’t seen a massive increase in defaults, it’s very early days though. Anecdotal feedback from lenders that are strong and well-funded is that they expect strong growth when the market returns, and that those who are optimised and agile will see an upswing.

“What I am hearing, is that consumers will remedially seek liquidity through debt, as the world normalises to address the short-term pain being experienced at present.”

Kirby adds that lenders who look at credit risk closely when the upturn comes in three to six months could see dramatic growth, albeit from a reduced base.

He added: “From Monevo’s perspective, day trading is difficult to predict and lenders are re-assessing short-term strategies.  We are using the time at present to apply additional focus on our internal tech pipeline in driving the product development roadmap forward to continue to deliver great solutions for our partners.

“We want to ensure when normality returns and the upswing in both demand and supply inevitably happens, that we are supporting our origination partners and the lenders on our panel as effectively as possible.”

 

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ERSTE BANK HUNGARY IMPROVES AND SECURES THE REMOTE BANKING EXPERIENCE WITH ONESPAN MOBILE SECURITY

ONESPAN

Leading Hungarian bank deploys OneSpan’s Mobile Security Suite to one million customers to make mobile banking convenient while fighting fraud and meeting PSD2 requirements

 

OneSpan™ (NASDAQ: OSPN), the global leader in securing remote banking transactions, today announced that Erste Bank Hungary, a subsidiary of Erste Group Bank AG, one of the leading banks in Central and Eastern Europe, has integrated OneSpan’s Mobile Security Suite into its banking app MobilBank. Erste Bank Hungary selected Mobile Security Suite to enable and protect online and mobile transactions and to comply with PSD2 requirements for authentication and dynamic linking.

The European Payment Council has stated that social engineering attacks continue to increase and remain instrumental in fraud schemes, often in combination with malware.[1] Erste Bank Hungary chose to implement OneSpan’s Mobile Security Suite to protect against potential social engineering and malware attacks directed at its customers. OneSpan’s technology enables banks to integrate application shielding, biometric authentication and transaction signing.

Erste Bank Hungary added Mobile Security Suite’s Cronto visual transaction signing to replace the bank’s SMS authentication with push authentication for login and transaction signing. This new process improves security and eliminates significant costs related to SMS delivery. OneSpan’s Cronto technology also helps fight social engineering attacks like phishing, while enhancing the customer experience by  enabling transaction signing using a color QR code.

“OneSpan’s proven technology will help us maintain our leading position in the market without compromising on security or the customer experience,” said Erste Bank Head of Digital Services, Akos Andras Molnar. “As part of this roll-out, our customers can also make online purchases using push notification with any retailer connecting to Erste Bank via the 3-D Secure protocol.”

“Criminal hackers continue to target banking customers as social engineering remains a preferred technique,” said OneSpan CEO, Scott Clements. “In their search for security solutions, banks need to consider cost, convenience and regulatory compliance. OneSpan’s technologies address these concerns so that banks can focus on providing a secure and convenient customer experience.”

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PROTECTING YOURSELF AGAINST LOSS OF FUTURE INCOME IN A RECESSION

Loss

By Gerard Visser, Financial Planning Consultant at Alexander Forbes Financial Planning Consultants.

 

With low GDP growth, credit ratings downgrades and the COVID-19 pandemic, our economy has taken a knock, leaving many investors’ reluctant to save and invest.

This hesitance is understandable, especially when one sees the daily drop in your actual investment values, and many investors might be looking at changing their current strategy by switching portfolios out of markets. However, success takes time, and a good investor must not base long-term decisions and strategies on short-term concerns.

Investors need to know what value they are getting for their investments and whether it is competitive or not. Short term market fluctuations and low economic growth environments can be ridden out where your investment period is over a long term.

If you find yourself in a low economic growth environment, it is a good time to assess your current financial habits and make the necessary adjustments.  It is important to understand the different types of investments you hold and determine the risks associated with them.

 

A low economic growth environment highlights the importance of keeping to good financial habits, like spending within your means to help get you through the tougher times. There are certain investment strategies you can follow to assist your investments during these times to be correctly set up for future growth.

 

Gerard Visser

It is important not to panic and switch your portfolios from your investments, especially if they are standing at an all-time low. You could erode significant future value should you choose to sell an investment at a loss. Quite simply if you sell at a loss, you will realise the loss and lose money in the long term. Your best bet is to keep your money where it is and wait for markets to recover.

 

Asset allocation involves deciding on the different mix of asset classes you hold in your portfolio, for example local and offshore exposure of shares, property, bonds, and cash. All asset class returns behave differently and offer different returns for different periods. Having a mixture of these asset classes will help grow and protect your investment though uncertain times. A portfolio with exposure to the different asset classes will offer protection and diversification in low economic growth.

 

Investors should not have all their money in one company or industry. If that industry or company takes a hit, so will your portfolio. This highlights the importance of diversification.

It is important to set up an investment strategy for the specific investment you are taking out as the allocation to the different asset classes will vary and in turn either increase or decrease the volatility and chance to make returns.

The stock market is cyclical and while it is useful to check your portfolio occasionally, to give you a general idea of how it is performing. It will not be helpful to check the value every day. When you invest in the stock market, you have to ride out tough times in order to come out on top.

 

Talk to your financial adviser to help with your investment strategy, they will be able to recommend investments that match your risk appetite, investment period and financial goals.

 

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