Another side of
Client Management:
Achieving Excellence
in Debt Collections
and Recovery
Manos Margaritis
Deputy CEO
The 2 sides of customer management
Servicing
the
customer
Managing
the
stressed
customer
The stressed environment
10 Steps to best practice
What is coming
The environment
European Banking Federation, 2012 report
Cyprus 2013: 39%
Spain 2013: 17%
The European Landscape
The European Landscape
Ring-Fencing
bad assets remain in the bank
Stand-alone Bad Banks
option A: New Bank gets the Bad De...
The European Landscape
governments establish the extent
to which they will assume the risk
of the bad assets
choices about...
Vertical Approach
Special units in ‘Traditional’ Banks and new ‘Specialist’
Servicing ≠ Owning
Debt Buying more visible as...
Vertical Approach
Restructuring
Accelerated Recovery
Soft
Hard
Early
Segmentation
Why
should other areas
care?
Why should other areas care?
Date Title Presentation 11
GCC NPLs :
1,5 % - 10%
a. the approach can be
transferred
a. the approach can be transferred
Date Title Presentation 13
“Bank of China Is Selling Bad
Loans to Investment-Bank Unit”
The Wall Street Journal, March 27, 2014
Bank of China , one o...
b. every aspect of the
Collection Process is
optimized
Collection
Assessment
Framework
CAF
Collection Assessment Framework CAF
Area
Area
Single authority / organization
Phased management, rule based
progress
Dedic...
Collection Assessment Framework CAF
Area
Area
Single authority / organization
Phased management, rule based
progress
Dedic...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Collection Assessment Framework CAF
Area
Single authority / organization
Phased management, rule based
progress
Dedicated ...
Phased management, rule based
progress
Area Best Practice Clues GAP System
Support
(Y/N/Parti
al)
System
Support
(can you
...
Are the right communications and
actions for customers in the early
delinquency stage followed? Are
they different from th...
Is pressure applied
progressive?
1kg
3kg
5kg
10kg
Is treatment spilt into phases?
Management phases
Soft
Pre-litigation
Litigation
Recovery
Define a consistent collection
approach applied by a specialised
unit within the bank’s organization
for each phase
During early phases,
Is the focus on working out a
solution in cooperation with the
customer, giving high priority to the
...
During late phases,
does focus shifts from protecting the
customer relationship to protecting
assets and minimizing losses?
Is moving from phase to phase
predefined and clearly stated?
Not based only on DPD but
factor in risk information
Do you allow some space for ad-hoc
management but with close monitor
and control?
Dedicated collection staff
Area Best Practice Clues GAP System
Support
(Y/N/Partial)
System
Support
(can you
change the
im...
The right offer to the right
customer at the right time
Area Best Practice Clues GAP System
Support
(Y/N/Parti
al)
System
...
The next wave of technology as a
catalyst
Machine learning & Data science
Challenge
Current Status
At each collection stage several actions
are possible.
Currently, the Collection Manager
decides ...
Even for simple modeling
State in our solution are defined using three attributes
Bucket
Number of months
Percentage of un...
We can achieve a Gain:
14,84%
MDP formulation
S4
S1
S2
S5
S6
S3
S8
S7
S9
a1, 0.5
R=10
a4, 0.1
R=9
a2, 0.15
R=20
a3, 0.25
R=7
a7,0.5
R=-100
a6, 0.1
R=-10...
Why this is not easy
Non-trivial representation
Shortage in know-how
Paradigm shift
Collecting under stress
10 Steps to best practice
What is coming
end-to-end solution
embedding best practices
fully parameterisable
quick deployment
A new generation of software
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Another Side of Client Management: Achieving Excellence in Debt Collections and Recovery

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Another Side of Client Management: Achieving Excellence in Debt Collections and Recovery

  1. 1. Another side of Client Management: Achieving Excellence in Debt Collections and Recovery Manos Margaritis Deputy CEO
  2. 2. The 2 sides of customer management Servicing the customer Managing the stressed customer
  3. 3. The stressed environment 10 Steps to best practice What is coming
  4. 4. The environment
  5. 5. European Banking Federation, 2012 report Cyprus 2013: 39% Spain 2013: 17% The European Landscape
  6. 6. The European Landscape Ring-Fencing bad assets remain in the bank Stand-alone Bad Banks option A: New Bank gets the Bad Debt option B: Bad Debt remains in the Original Bank ‘SAREB’ & NAMA’ model bad assets transferred to nationalized financial institutions
  7. 7. The European Landscape governments establish the extent to which they will assume the risk of the bad assets choices about the assets to be transferred, the structure, the business case, the portfolio strategy, and the operating model
  8. 8. Vertical Approach Special units in ‘Traditional’ Banks and new ‘Specialist’ Servicing ≠ Owning Debt Buying more visible as an opportunity at 3~10% of nominal value Asset Management / Real Estate
  9. 9. Vertical Approach Restructuring Accelerated Recovery Soft Hard Early Segmentation
  10. 10. Why should other areas care?
  11. 11. Why should other areas care? Date Title Presentation 11 GCC NPLs : 1,5 % - 10%
  12. 12. a. the approach can be transferred
  13. 13. a. the approach can be transferred Date Title Presentation 13
  14. 14. “Bank of China Is Selling Bad Loans to Investment-Bank Unit” The Wall Street Journal, March 27, 2014 Bank of China , one of the country's big four state-owned banks, has started a new strategy of unloading soured loans to its investment- banking unit, which then would try to restructure the debt with the hope of recovering more than it paid for the loans, according to bank officials.…, the problem loan would no longer stay on the bank's balance sheet after the sale under Chinese accounting rules,
  15. 15. b. every aspect of the Collection Process is optimized
  16. 16. Collection Assessment Framework CAF
  17. 17. Collection Assessment Framework CAF Area Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector
  18. 18. Collection Assessment Framework CAF Area Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best Practice
  19. 19. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues
  20. 20. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues GAPS
  21. 21. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues GAPS System Support
  22. 22. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues GAPS System Support ( Y/N/ Partial )
  23. 23. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues GAPS System Support ( adapt fast )
  24. 24. Collection Assessment Framework CAF Area Single authority / organization Phased management, rule based progress Dedicated collection staff Capacity planning Account or Customer Level ? The right offer to the right customer at the right time Pool vs Ownership Centrally defined collection tools & communication scripts Measure & Motivate your collector Best PracticeArea Clues GAPS System Support Prioritize & Plan
  25. 25. Phased management, rule based progress Area Best Practice Clues GAP System Support (Y/N/Parti al) System Support (can you change the implementatio n fast?) Plan Phased management, rule based progress Clear Separation between Phases, consistent treatment Do you have a communication and action plan for customers in the early delinquency stage and litigation phase? Is pressure applied progressive? Do you divide management into phases? Do you have a defined consistent collection approach applied by a specialized unit within the bank’s organization for each phase?
  26. 26. Are the right communications and actions for customers in the early delinquency stage followed? Are they different from those required when litigation is involved?
  27. 27. Is pressure applied progressive? 1kg 3kg 5kg 10kg
  28. 28. Is treatment spilt into phases?
  29. 29. Management phases Soft Pre-litigation Litigation Recovery
  30. 30. Define a consistent collection approach applied by a specialised unit within the bank’s organization for each phase
  31. 31. During early phases, Is the focus on working out a solution in cooperation with the customer, giving high priority to the protection of the customer relationship? aim is to minimize the number of cases moving through to the later stages
  32. 32. During late phases, does focus shifts from protecting the customer relationship to protecting assets and minimizing losses?
  33. 33. Is moving from phase to phase predefined and clearly stated? Not based only on DPD but factor in risk information
  34. 34. Do you allow some space for ad-hoc management but with close monitor and control?
  35. 35. Dedicated collection staff Area Best Practice Clues GAP System Support (Y/N/Partial) System Support (can you change the implementatio n fast?) Plan Dedicated collection staff Employ dedicated, well trained staff. The internal organization of the collection department directly affects its performance Do you employ dedicated collection staff? Do you train them? roles and job descriptions (from collection manager to skip tracing agent)
  36. 36. The right offer to the right customer at the right time Area Best Practice Clues GAP System Support (Y/N/Parti al) System Support (can you change the implementation fast?) Plan The right offer to the right customer at the right time Segmentation, Collect by objectives Do you segment the portfolio using customer/accoun t analytics? Do you Use Static AND Behavioral metrics ? Do you increase self-cure? Do you avoid customer irritation?
  37. 37. The next wave of technology as a catalyst Machine learning & Data science
  38. 38. Challenge Current Status At each collection stage several actions are possible. Currently, the Collection Manager decides which actions to apply – and describes that in terms of a static strategy related to segments Goal Find which collection actions should be applied at each collection stage in order to optimize the revenue* of the collection process *revenue incorporates fees, interest, payments, collection cost
  39. 39. Even for simple modeling State in our solution are defined using three attributes Bucket Number of months Percentage of unpaid debt / total debt Discretized in ten categories: [0..10], [10..20], .. [90..100] Risk level {N/A, low, medium, high, very high}
  40. 40. We can achieve a Gain: 14,84%
  41. 41. MDP formulation S4 S1 S2 S5 S6 S3 S8 S7 S9 a1, 0.5 R=10 a4, 0.1 R=9 a2, 0.15 R=20 a3, 0.25 R=7 a7,0.5 R=-100 a6, 0.1 R=-10 a4, 0.5 R=-10 a5, 0.4 R=-14 a6, 0.1 R=-10 a4,0.1 R=-100 a7,0.5 R=10 a7,0.5 R=100 a1,0.3 R=10 a3,0.4 R=7 a7,0.5 R=10 a7,0.4 R=19 a7,0.1 R=-10 a3,0.1 R=-100 41 Goal is to find π: 𝑆 → 𝐴: max Eπ(s) = { 𝛾ℎ 𝑟ℎℎ 𝑖=1 } = 𝑇 𝑠, π 𝑠 , 𝑠′ (𝑟 𝑠, 𝑎, 𝑠′ + 𝛾 Ε𝜋 𝑠′ )𝑠′ 0 < 𝛾 ≤ 1 Model the system as the tuple: (S,A,T,R) where: S: states of the system A: actions list T: Transition probabilities R: rewards
  42. 42. Why this is not easy Non-trivial representation Shortage in know-how Paradigm shift
  43. 43. Collecting under stress 10 Steps to best practice What is coming
  44. 44. end-to-end solution embedding best practices fully parameterisable quick deployment A new generation of software

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