another side of client management: achieving excellence in debt collections and recovery

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


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


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

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

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 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,

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

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


Area

Area



progress


Capacity planning



the right time

Pool vs Ownership




Best

Practice


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best

Practice Area Clues


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best

Practice Area Clues GAPS


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best

Practice Area Clues GAPS System

Support


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best


Support ( Y/N/ Partial )


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best


Support ( adapt fast )


Area



progress


Capacity planning



the right time

Pool vs Ownership




Best


Support Prioritize

& Plan

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?

Are the right communications and actions for customers in the early delinquency stage followed? Are they different from those required when litigation is involved?

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 protection of the customer relationship? aim is to minimize the number of cases moving through to the later stages

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?


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)

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?

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 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

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}

We can achieve a Gain:

14,84%

MDP formulation

S4

S1

S2

S5

S6

S3

S8

S7

S9

a1, 0.5R=10

a4, 0.1R=9

a2, 0.15R=20

a3, 0.25R=7

a7,0.5R=-100

a6, 0.1R=-10

a4, 0.5R=-10

a5, 0.4R=-14

a6, 0.1R=-10

a4,0.1R=-100

a7,0.5R=10

a7,0.5R=100

a1,0.3R=10

a3,0.4R=7

a7,0.5R=10

a7,0.4R=19

a7,0.1R=-10

a3,0.1R=-100

41

Goal is to find π: 𝑆 → 𝐴:

max Eπ(s) = { 𝛾ℎ𝑟ℎℎ𝑖=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

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

another side of client management: achieving excellence in debt collections and recovery

Software