The document summarizes key considerations for investing in Dutch consumer finance non-performing loan portfolios. It notes that the Dutch economy and consumer confidence is growing. Collections are friendly with a strong legal creditor position and developed debt collection agency and bailiff markets. While the total non-performing loan stock is increasing, relatively small deals and forward flows are established. Investors should understand legal and compliance requirements and embed customer centric practices. The collections environment offers amicable and legal options with an increasing but still competitive bailiff and debt collection agency market.
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Investing in Dutch NPL
1. Hand-out theme table βinvesting
in Dutch consumer finance NPL
portfolio'sβ
Amsterdam, 20 November 2015
2. Agenda
Why invest in Dutch portfolioβs / NPLβs?
Dutch NPL market in European perspective
Market observations
Overview of market parties
Different types of transactions common in the Dutch market
Legal considerations
Collections environment
Key take aways
3. 3
Why invest in Dutch portfolios / NPLβs?
Source: http://www.cpb.nl/persbericht/3216073/cpb-publiceert-macro-economische-verkenning-2016
Informal observations, market data, personal opinion
Economic growth 2015 / 2016 +2% / +2.4%
Unemployment decreasing 2015 / 2016 6.9% / 6.7%
Deficit 2015 -2.1% and 2016 -1.4%
Low inflation.
Increasing consumer confidence.
Collections friendly market. Strong legal creditor position.
Well developed DCA / bailiff market, sensitive to competition, eager.
Seller side developing, market appetite for opportunities. Activity increasing, but
relative to other countries still low.
Sufficient benchmark and deal experience available at seller, legal, servicer and
buyer side.
Marco
4. 4
In perspective
Taken from PwC presentation by Guillermo Barquin on the European NPL market, Madrid β Spain (15.10.2015)
Source: PwC, Central Banks published data, World Bank and IMF.
PwC market survey 9M 2015: expected volume Retail and CRE = 3bn.
5. 5
Some market observationsβ¦
Source: graph: http://www2.deloitte.com/content/dam/Deloitte/uk/Documents/corporate-finance/deloitte-uk-deleveraging-europe.pdf Quote PwC: http://www.pwc.co.uk/services/transaction-
services/insights/market-survey-2015.html
Observation: less deals by DCAβs and more by investors.
The large Dutch retail banks have not started selling NPLβs on a large schale
(yet?).
NPL stock has increased steadily over the years.
Dutch government doesnβt sell student loans, etc.
Most active sellers: telecos / consumer finance / energy & utility. Some other
sectors like housing are moving slowly, initiating some test transactions.
Relatively stable market, some 200-300MM of
(retail) NPLβs sold yearly by the financial sector.
Most publications and reports have a
variable outlook for the Dutch NPL market.
PwC: We are seeing increasing appetite for
Dutch banks to deleverage their NPLs and
large PE investors are increasingly turning their
attention to this market.
The market
6. 6
Dutch market players β (potential) investors in NPLβs
Source: personal observations, informal information
Secured and unsecured
Locals
7. 7
Common transaction types in the Dutch market
Source: personal opinions / industry estimates.
Type of deals
8. 8
Some legal considerations
Source: personal opinions, public information
No (late/arrears) fees allowed under Dutch law (WCK β consumer finance law)
Legislator assuming all cost paid out of regular interests and delay interests.
(delay) Interest to be charged after termination and no higher then agreed interest in
terminated contract.
Laws governing the charging of late fees as stipulated in the WIK (law on collection
fees) do not apply to consumer finance.
Management (beheer) of receivables requires a licence from the regulator (AFM -
Authority Financial Markets). Legal ownership of CK receivables can be obtained
without a license, however no management (collect, receive payments, etc.) can be
done.
To obtain an AFM license a membership of the Dutch credit bureau (BKR) is
required.
The buyer or investor can rely on a servicer who has these licenses.
A movement is visible in the market of more servicers / buyers applying for a
license.
Legal
9. 9
Some legal considerations
Limitation period after termination between 2 and 5 years, depending on type of
consumer finance.
Limitation period of a verdict is 20 years (fixed on the amount as stipulated in the
verdict), any delay interests after the verdict have a limitation period of 5 years).
Limitation periods can be extended by sending the consumer a letter (please take
receiving theory risk into consideration) or summons by a bailiff (no or very limited
risk). Extension for no longer then 5 years.
Efficient court system, in majority of cases verdict will be obtained within 3 months.
Estimated 70-80% of legal collection verdicts granted without debtor actively
participating in proceedings (verstek vonnis).
For court cases concerning consumer finance no lawyer representation is needed
up to 40k.
Most but not all legal collection cost will have to be paid by the debtor if convicted.
Legal
Source: personal opinions, public information
10. 10
The collections environment
Source: public sources, news articles, court studies.
Debt collection agencies are governed by a limited number of specific collection
laws. The larger DCAβs are a member of the Dutch association of collection
companies (NVI) and adhere to their rules and regulations. There are between 550
and 600 DCAβs registered in the Netherlands, however the larger NVI members
(#30) cover some 70% of the market.
There have been bankruptcies / restructuring / FTE reductions within the sector. A
further shakeout and / or consolidation is expected.
Specialized (medium sized) DCAβs seem to be performing better then (large) all
round DCAβs.
Increased competition and pressor on prices / margin can be observed when
tendering DCA but also bailiff services.
In recent years the cost of legal collections (mainly court fees) have increased
significantly. Also, the rules have changed regarding the possibilities for bailiffs pre-
financing the out of pocket cost of legal collections and NCNP constructions.
Reducing the number of legal collection cases (-30%). After the implementation of
WIK in 2012 a trend is visible of companies using DCAβs less for amicable
collections and moving those activities in-house, viewing collections as a profit
centre.
Some basics β DCAβs
11. 11
The collections environment
Source: public information, trade organizations, research by ING, ABN AMRO, other public sources.
Bailiffs are appointed by the Crown, but are also businesses that need to generate
a profit. Out of pocket + commission based on success is allowed. The top 5 bailiff
companies cover some 50% of the market volume.
They are governed by specific sections of the law, their trade organization (KBvG)
and the bureau of financial oversight (BFT). Feeβs charged to consumers are
regulated by law (Btag).
Bailiffs can represent the creditor in court, vast majority of legal collections cases
are managed by Bailiffs. Usage of law firms for legal collections (BtC) is very
limited.
Bailiffs are allowed to offer amicable collection services, thereby competing with
DCAβs. Estimated that some 40% of bailiff turnover is generated by amicable
collection activities.
Individual bailiffs (some 950) are a member of the Royal Professional Organization
of Judicial Officers (KBvG).
Fragmented bailiff market with a lot of small and medium sized companies. Number
of companies in the Netherlands between 150-200, 400MM+ turnover. There have
been bankruptcies / restructuring / FTE reductions within the sector. A further
shakeout and / or consolidation is expected.
Digitalization (government driven program KEI) in different stages of
implementation.
Some basics - bailiffs
12. 12
Considerations when entering the marketβ¦
Translation of Klant Belang Centraal
Source: personal opinions / informal information.
Key take-aways (when buying NPLβs):
You can expect and ask for post deal service and aftercare.
Information, digital files and financial data well developed and available.
Relatively smaller deals, spot sales and forward flow are well established.
Interest of the regulator (AFM) in debt sales increasing, market adjusting. Not
comparable however to for example the UK.
Know the legal and compliance requirements. Imbed customer centricity* into
your processes and offer.
Straight forward NPLβs, specials usually already internally managed.
Creditor friendly environment. Sufficient options for amicable and legal
collections. Cost of legal collections has increased over time.
Competitive bailiff and DCA market, strong negotiation position.
Dear investor
13. Thank you for your attention and joining this discussion
Casper Sonnega
Director Collections Business Unit Benelux
Contact details:
Mobile: +31(0)6 β 10 90 72 23
E-mail: casper.sonnega@santander.nl
www.linkedin.com/in/caspersonnega