In a credit-constrained environment, where banks and businesses face limited access to capital, the role of IT becomes more crucial than ever. A credit crunch - a severe reduction in the availabiltiy of loans or credit - presents profound challenges for economies, businesses and financial institutions. Technology can drive operational efficiency, reduce costs and foster innovation, product development even when financial resources are tight. However, IT leaders must balance the need for digital transformation with the reality of constrained budgets and heightened risk aversion.
The Hungarian Loan Market started to show some revitalizing signs but in the current economically stagnating business environment, the Hungarian Financial Institutions adopted a new, much more risk-averse behaviour. That new approach trickled down to the IT departments as well, where several experts of Advocate Business Consulting were ready to provide solutions for the new challenges in a wide range of related projects:
1. Providing solutions to the increased risk exposure
In a credit crunch, non-performing loans (NPLs) tend to rise as businesses and consumers struggle to service debts and the financial institutions are putting a larger emphasis in identifying and managing these growing risks. Striking a balance between maintanining client relationships and mitigating the risk of default becomes critical.
Many projects were initiated in order to refine and in some cases, completely revamp the credit risk management strategies. This includes revisiting credit scoring models, tightening lending standards and enhancing due diligence processes. That also meant to re-design and implement early warning systems to detect deteriorating asset quality before it leads to significant financial losses.
2. Technological and Digital Transformation
In an era of credit crunch, banks increasingly look to technology to improve efficiency, reduce costs and enhance customer experiences. However, the pressure to invest in digital transformation is a challenge, especially when budgets are tight and risk aversion is high. Digital transformation remains a top priority for the Hungarian financial institutions, even when budget and human resources are tight. The main challenge of the IT strategic stakeholders is to pursue transformation in a cost-effective manner. Rather than large-scale, expensive overhauls, organizations should focus on quick wins - smaller, targeted IT projects that deliver measurable value quickly.
Advocate Business Consulting’s experts played a critical role in helping Hungarian Financial Institutions prioritize their technological investments on the new business IT requests. Our experts were able to identify quick wins through automation, already available digital lending platforms, and artificial intelligence (AI) in risk assesment and customer service. Implementing these solutions helped our clients remain competitive in a credit-constrained environment, even with reduced resources.
3. Optimize Legacy Systems
In many cases, upgrading legacy systems is an expensive and time-consuming endeavour that organizations may not be able to undertake during a credit crunch. However, maintaining and optimizing these systems is crucial to avoid breakdowns or inefficiencies that can be costly in the long run. Some newly introduced legal obligations were missed if a brand new system would be needed, so the legacy systems were crucial to keep the Hungarian Financial Institutions operational.
The best solution for tackling the new challenges was to adopt a hybrid approach where legacy systems were modernized incrementally, keeping the focus on the current business demands or legal compliance projects while taking consistent steps towards the modernized goal. Our experts helped assess which parts of the system needed urgent updates and which are the parts where external, readily available vendor solutions could be integrated for greater efficiency. Modernizing through APIs (Application Programming Interfaces) allowed for faster and more cost-effective system improvements without requiring a complete overhaul - which ultimately meant many successfully closed projects.
By adopting an agile, scalable and forward-looking approach to technology, the Hungarian Financial Institutions could weather the storm of economic uncertainty and emerge stronger on the other side - with the support and participation of our experts.