All sectors of the economy are challenged to respond to the current Corona crisis. As a consulting company specialized in IT-related consulting for banks and insurance companies, we at ADWEKO have thought about how we can support our customers in this situation. In the process, one topic has emerged from many personal discussions with our customers and our partner FAS AG: Loan Modification.

Manufacturing companies face immense challenges due to disrupted supply chains, partially or completely shut down production facilities, and lack of sales and revenue. As a result, many borrowers find themselves forced to enter into dialogue with their credit institution (lender) in order to adjust the payment terms of their financing. Due to the financial obligations arising from contractual interest and redemption payments, companies can quickly find themselves in liquidity bottlenecks and thus in difficulties. The credit departments of the banks are currently working flat out on solutions to enable their customers (borrowers) to continue to repay the loan in the long term by adjusting their contracts.

Integrated and automated modification

Against the background of the accounting-specific requirements (IFRS 9), credit institutions subject to the IFRS standard must take into account certain requirements specified under the heading “Modifications to financial assets” in the IFRS standard.

As early as 2017, we at ADWEKO, together with FAS AG, developed a solution offering consisting of functional, technical and methodological components to cover the topic of modification in an integrated and automated manner in the overall process. Since the modification process played a rather subordinate role in the major IFRS 9 implementation projects – certainly also due to the fact that the number of modifications did not exceed 100 for the year as a whole, even at large institutions – many banks opted for manual interim solutions.

This need has changed massively in recent weeks. The number of modifications will quickly run into the thousands. Common manual intermediate solutions quickly reach their limits here. In order to avoid efforts in terms of process costs and to reduce rework/delays in the context of monthly/quarterly and annual financial statements, we recommend the use of the FAS / ADWEKO solution.

Next steps

Each credit institution must assess for itself how it will deal with the issue in the short to medium term. The current crisis certainly intensifies the need for action. To be able to act here, we propose the following next steps:

 

  1. Participation in the FAS AG webinar: here, current solution approaches are outlined for the topic of loan modifications, among others. Registration here.
  1. Participate in a design thinking interview on the topic of “modification.” Take an active part in the design of the target solution, taking into account institution-specific problems. If you are interested please send a E-mail to bjoern.vonstaden@adweko.com

For almost 20 years, Cord Boetger has been supporting various companies from the financial services sector in IT transformation projects. In the course of his professional career, he has already become familiar with the different interests from the perspective of a bank, from the perspective of a software manufacturer and from the perspective of a consulting company. This experience helps him to work out the ideal balance between the quite different solution approaches for ADWEKO’s customers.

Cord Boetger

ADWEKO Consulting GmbH

0 Comments

Submit a Comment

Your email address will not be published.