Lessons Learned From Loan Repayment Moratorium


Advocate Business Consulting, being one of the top IT consulting firms for the Hungarian Financials Institutions had the opportunity to lead and participate in projects concerning the implementation of the Hungarian National Bank's Loan Repayment Moratorium mechanism for nearly half in Hungary's bank. With the help of overall 25 experts, our company has gained a notable expertise in the field which was translated into an internal training and coaching material, a Lessons Learned summary that provides valuable insights and best practices for regulatory compliance projects in the field of Retail and Corporate Lending.

In case you're not familiar with the issue, in response to the coronavirus pandemic's looming effects on the economy, the Hungarian National Bank issued the Hungarian Financial Institutions in March 2020 to introduce a loan repayment moratorium mechanism for all debtors (corporate and retail also) which allowed the delayed payment of the instalments. Technically speaking, the debtors were not obliged to pay the scheduled due payments, however banks had to enable methods for debtors to opt-out from the mechanism (which was introduced as an automatic opt-in way). The main milestones of the repaymant moratorium were the following:

  • 1. milestone: the mechanism was introduced starting from March 2020 with an automatic opt-in, covering all already started loan deals.
  • 2. milestone: starting from 1st Nov 2021, the loan moratorium mechanism ended for most of the debtors, by letting only a selected sub-set of debtors to remain in the mechanism (debtors with more than 25% income decrease, debtors with children or debtorswho are between jobs or retired). Eligible debtors had to opt-in to stay in the mechanism.
  • 3. milestone: 30 June 2022, end of the moratorium mechanism, all participants must continue to pay the instalments.

With the exception of the third milestone, all milestones are behind us. During the design and implementation projects, our experts helped tackle many challenges which were basically the same for most of the Hungarian Banks, including:

  • leading agile projects with tight deadlines: the emergency situation to CoVid pandemic has triggered resulted in very tight and strict deadlines. With the introduction of the work from home method, initially it was very hard to lead a successful a project, but our project managers had expertise in working in these circumstances. With major and not-so-major changes in the daily work (multiple daily standups and instant video calls) the newly formed project teams were able to act quickly and operating with beter-than-expected efficacy.
  • working with hard-to-configure lending systems: since the loan repayment moratorium mechanism fundamentally alters the way how an annuity should be repaid and the lending systems used by the banks were designed to handle the standard loan amortization schedules, new solutions had to be defined. Within the tight deadlines it was possible to introduce new technical accounts in the Core Banking Systems that were responsible for "collecting" the repayments that were not paid (these amounts are meant to be repaid with 0% interest with the same duration as the loan deal). Meanwhile, the loan repayment schedules were modified in the Lending Systems by extending the maturity date with the time being in the moratorium mechanism. With these two parts (the "moratorium due" account balance to be repaid and the modified maturity of the original loan deal) the Core Banking part of the projects were carried out as quickly as possible (not surprisingly, most of the Hungarian banks came up with a solution like this).
  • reaching out to the debtors: during the first phase of the mechanism, an opt-out method must be provided to the affected debtors which was overridden by an opt-in method in the beginning of the second phase. That posed an extreme challenge for both the branch operations and the contact centers (working hours for direct client contanct were several shortened because of the involved health risks), therefore the necessity of digital channel developments became the reality. Fortunately, all of the Hungarian Banks had at least one digital channel (either a desktop Internet Bank or a Mobile Banking solution) available, but for most of the cases, the secure online contact or providing a legally binding statement was not possible without further developments. With the help of our experts, several Hungarian Banks were able to design and implement the necessary changes, mostly with the help of our Ominchannel Banking Standardized Framework.

The solutions for the mentioned challenges were almost universally the same in all financial institutions:

  • don't over-develop the solution, use whatever tools are now available with the least possible development in Core Banking.
  • increase the effort and budget on digital channel development.
  • coach the project team members (even if you're not a project manager) how to work within the new work environment.

With several examples availabe in the Lessons Learned materail, Advocate Business Consulting has already conducted several in-house training for our experts who were not primary participants in the related projects - our experts feedback were unanimously positive and reaffirming, making sure our company will continue to synthesize lessons learned in common projects carried on throughout the Banking industry in Hungary.