UMVA has learned that as inflation and high energy costs continue to squeeze households and businesses, banks are being pushed to balance asset quality with borrower survival — opening the door to products and policies designed less for punishment and more for resilience.
In times of economic stress, banks have traditionally intensified collections, preserved margins, and protected portfolios. However, this approach can worsen the very credit risks it seeks to contain, as households struggle to cope with rapidly rising costs.
Sources close to the banking industry have confirmed to UMVA that lenders may be forced to confront a harder truth: in an economy where inflation can quickly hollow out household cash flow and volatile fuel prices can cascade through transport, food, and utility bills, a collections-heavy approach can have devastating consequences.
“If banks lean too heavily on aggressive collections during a broad-based stress episode, they risk amplifying economic weakness,” according to a leading economist. This can lead to “higher defaults, reduced household spending, and ultimately a feedback loop that worsens asset quality across the system.”
In response, banks are shifting their focus towards building models that can respond quickly to temporary strain. In some countries, this shift has taken on a more immediate policy dimension, with regulators giving banks more room to extend temporary relief to affected borrowers.
Under new relief measures, banks may grant grace periods of up to six months for loan payments, defer some agricultural loans for as long as one year, and temporarily exclude qualified loans from past-due and nonperforming classifications for up to a year.
However, regulators have been explicit that support should not be indiscriminate. Relief should be extended only to borrowers whose repayment capacity has been materially affected by the energy emergency, and such measures must remain “targeted, proportionate and consistent with safe and sound banking practices.”
In this environment, banks need to shift from a collections-first mindset to a risk stabilization approach. This involves preserving repayment capacity through “flexible, well-targeted restructuring,” and offering products aimed at the pressure points of a high-cost, energy-disrupted economy.
One major bank has argued that the case for relief is both principled and practical. “Banks today are expected to play a broader role than simply facilitating transactions or managing collections,” it said. During periods of economic pressure, clients look to their banks “for stability, guidance, and practical support.”
This broader role means helping customers build “long-term financial resilience, not just manage immediate financial obligations” through financial education, digital tools, and products that promote disciplined saving and responsible borrowing.
The bank has introduced a range of products and services designed to help customers cope with rising costs, including digital banking solutions, accessible savings products, and payment channels that make recurring expenses easier to manage.
It has also underscored the role of digital tools in identifying client needs earlier and making support more usable day to day. Digital tools and analytics help institutions better understand “customer behavior, transaction patterns, and service needs,” improving responsiveness and enabling more proactive engagement.
Inflation is “inherently regressive,” with lower-income households feeling the squeeze first and most severely. As such, lenders need to be proactive in offering relief and support to borrowers.
Early warning signs of repayment stress include “higher credit utilization, thinning deposit buffers, and a widening gap between wage growth and inflation” — all signals that households are starting to come under pressure.
A relief-ready framework assumes that preserving purchasing power at the margin can also preserve credit performance over time. Collections will still matter, but lenders need to distinguish between unwillingness to pay and temporary incapacity caused by inflation and energy shocks.
UMVA can exclusively reveal that lenders that turn this principle into product design, digital support, and timely borrower assistance may not only protect clients more effectively, but also build stronger and more resilient loan books.
