FROM BANKING COLLECTIONS
TO COLLECTIONS BUSINESS
By Yury Grachov
Prague, June 2013
CRISIS IN UKRAINE 2008: THE BEGINNING
2
ENVIRONMENT:
 Loans: 90% in FOREIGN CURRENCY
 Income: 90%+ in UAH (LOCAL CURRENC...
CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES
ENVIRONMENT:
 Major Liquidity Crisis:
 Deposits Withdrawal
 Cease of Lendi...
CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES
4
 Cease of lending in 2009-2010 lead to increase of 360+ to the volume of C...
LTV IS THE MAIN DRIVER?
• After crisis lenders have found that impossible to avoid credit losses even in the event of
coll...
Cars:
– The most liquid collateral in retail
– The least fall of value within crisis
Trucks:
– Zero liquidity
– The most s...
DEBT SETTLEMENT CONCEPT
We understand:
- We are losing or the residual difference
between outstanding and collateral value...
DEBT SETTLEMENT
Collections = Collateral
Value
Collections = Collateral
Value + Extra
Debt Settlement
Collateral: Mortgage...
Soft (RS):
> Identify possible DS
> Remote DS proposal
Field:
> Final Negotiation
> Collections of
documents for deal
Coll...
KEY ELEMENTS FOR SUCCESS
10
 1st DS Programs in Ukraine (Dec 2010):
 Quick decision-making
 Tough process timing
 Moti...
COLLECTION BUSINESS
11
 $500 million NPL portfolio under management:
 90% - Mortgage
 5% - Auto
 5% - SME
 $400 milli...
12
THANK YOU FOR YOUR ATTENTION!
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Yuriy Grachov: From banking collections to a collections business

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• The crisis in 2008: the beginning and consequences for Ukraine
• LTV as a main driver for Collection Strategies (post-crisis LTVs)
• the decision behind creating an NPL business (1st DS Program in Ukraine, people, processes, infrastructure)
• the NPL business concept (organizational chart, strategy, HR, IT, KPI's & MIS)
• Key elements for success

Published in: Economy & Finance, Business
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Yuriy Grachov: From banking collections to a collections business

  1. 1. FROM BANKING COLLECTIONS TO COLLECTIONS BUSINESS By Yury Grachov Prague, June 2013
  2. 2. CRISIS IN UKRAINE 2008: THE BEGINNING 2 ENVIRONMENT:  Loans: 90% in FOREIGN CURRENCY  Income: 90%+ in UAH (LOCAL CURRENCY)  200% home prices growth for last 2 years  90% Sub-Prime Mortgage with low DP
  3. 3. CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES ENVIRONMENT:  Major Liquidity Crisis:  Deposits Withdrawal  Cease of Lending  Local Currency (Hrivna) is devaluated 60%  Home Prices is down 60%  Stock Market is down 83,5% 3 • Growth of non-performed loans is due to the falling value of home prices together with devaluation of local currency and a general fall in the level of household income
  4. 4. CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES 4  Cease of lending in 2009-2010 lead to increase of 360+ to the volume of Current  The biggest disproportion of Current and Write Off in Non Collateral Loans (short term loans, ↑ Default)  Auto is the most stress resistant product due to high liquidity of collateral
  5. 5. LTV IS THE MAIN DRIVER? • After crisis lenders have found that impossible to avoid credit losses even in the event of collateral sales. • So, collection strategy based on LTV or Collateral Ratios has became the key to collection success. Coverage Ratios - 2009 5
  6. 6. Cars: – The most liquid collateral in retail – The least fall of value within crisis Trucks: – Zero liquidity – The most significant fall of value within crisis Apartments: – Liquidity is adequately to fall of value within crisis Homes: – Low liquidity – Significant fall of value within crisis LandsPlots: – Zero liquidity – No consumer demand Commercial Real Estate: – In terms of liquidity each object is unique – Fall of value is very similar to apartments 6 A2 A3 A4 A2-A3 A4 A1 COLLATERAL VALUE AFTER STRESS SCENARIO 6
  7. 7. DEBT SETTLEMENT CONCEPT We understand: - We are losing or the residual difference between outstanding and collateral value, or the part of this - Voluntary way is the shortest cut to get cash - Voluntary way is the cheapest way to get cash - Standard collections tools do not work Borrower understands: - He is unable to pay the debt - Investment in collateral does not make sense - His property is at risk Assumption: is it possible to reach agreement if the lender agrees to accept credit loses from difference and the borrower agrees to sell the collateral under control? 7
  8. 8. DEBT SETTLEMENT Collections = Collateral Value Collections = Collateral Value + Extra Debt Settlement Collateral: Mortgage Condition: a) Short Sale (not less than 50%) Target Market 4 DS: 1. Coverage Ratio < 80% 2. DPD => 360 3. No additional property for legal enforcement 8 Collateral: Auto or SME Condition: a) Short Sale + 20% of the “Tail”
  9. 9. Soft (RS): > Identify possible DS > Remote DS proposal Field: > Final Negotiation > Collections of documents for deal Collection Back- Office: >Deal Closure CRM •Maintaining of common history of relations with debtor •Effective internal communications between departments •MIS and reporting Sales •Own competence of collateral evaluation •Own competence of collateral sales Head Office •One center of decision-making. •Strong KPI’s and Incentive Systems 9 DEBT SETTLEMENT: HOW DOES IT WORK?
  10. 10. KEY ELEMENTS FOR SUCCESS 10  1st DS Programs in Ukraine (Dec 2010):  Quick decision-making  Tough process timing  Motivation Scheme – 100% of staff incl. support  Full Infrastructure 4 Collateral Collection:  Regional network (10 collection clusters)  Strong In-House Legal Team  RS, FV and Legal work in-parallel  In-house Auto and Realty Sales
  11. 11. COLLECTION BUSINESS 11  $500 million NPL portfolio under management:  90% - Mortgage  5% - Auto  5% - SME  $400 million NPL portfolio in process of purchasing  Average Purchase = 8-12%  Annual Average Return = 7-9%  Assumption Cost = 20%
  12. 12. 12 THANK YOU FOR YOUR ATTENTION!

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