A new study by the European Financial Marketing Association (EFMA) and Roland Berger Strategy Consultants, entitled ‘Retail Banking in CEE – Debt Collection in Times of Crisis’, reveals key findings and areas for improvement in debt collection practices across Europe.
In the course of the financial crisis, the previously growing retail lending market for banks in central and eastern Europe (CEE) came to a sudden halt, and debt collection was suddenly catapulted into prominence, in the process becoming one of the key levers to maintain CEE banks’ profitability – it is no wonder that approximately 80% of CEE banks sell or plan to sell delinquent debt.
Almost all CEE banks surveyed steer and perform most of their retail collection activities from their head office. While early collections are mostly handled in-house, more than two-thirds of banks, however, outsource at least partially in late collection. The most common means of communication are still phone or letter, with a growing trend towards cost-effective tools such as SMS or e-mail.
“Debt collection is becoming an extremely important area of banks’ operations, with regard to both cost and profitability, and yet it is one which is little discussed in this market,” said Patrick Desmarès, secretary general of EFMA. “Comparing CEE banks with regards to their collection processes, organisational set up, performance measurement practice and support infrastructure, we see some noticeable differences. This survey makes interesting reading, indicating as it does some room for improvement for many CEE banks to catch up with best practices elsewhere.”
Outsourcing of Collection and Debt Sale
The share of banks considering debt sale has considerably increased since the crisis and today 79% of the surveyed banks sell or plan to sell delinquent debt, albeit sold volumes currently still remain rather low. “Selling debt for most CEE banks is mainly used to reduce risk, to manage the balance sheet, as a measure of last resort if economic recovery remains weak or alternatively as strategy to free up resources fast,” said Hendrik Bremer, financial services partner at Roland Berger Strategy Consultants.
Early collections, containing most of the easy-to-solve cases, are mostly handled in-house – only 35% of banks use or plan to use collection agencies for these. In late collection, more than two-thirds of banks, however, outsource at least partially. While banks try to avoid legal collection (due to long procedures and usually limited success in recoveries) more than 50% handle legal collection in-house.
The level of sophistication of collection strategies differs highly across CEE banks. Most commonly, CEE banks differentiate processes according to easily assessable criteria such as product and client segment. Advanced approaches like behavioural analytics are only in by approximately one-third of the banks. The most common means of communication are still phone or letter. There are growing trends to use cost-effective new tools like SMS and e-mail and two-thirds of the banks are using these, mostly in addition to letter communications.
“Surprisingly, while heavily relying on phone contacts, advanced call centre technology is only in place with approximately one third of the surveyed CEE banks. This leaves significant efficiency improvement potentials untapped,” said Desmarès.
Organisational Set Up and Capacity
Almost all CEE banks surveyed steer and perform most of their retail collection activities from their head office. Roughly one-third of the banks additionally have collection units either on regional or branch level – mostly used for field collection, collection from specific customer segments or exposure levels. “Within CEE banks the level of specialisation of collection units varies. Many banks have units dedicated to specific client segments, with more than two-thirds of CEE banks using collection units dedicated to individual clients,” said Bremer.
Depending on level of automation and outsourcing, staff capacity differs strongly between banks. The majority of CEE banks these days, however, have a 2.7% to 6.0% share of their staff in collections. With urgent need for additional collection capacity, most banks have increased their collection staff throughout the crisis, often while running staff cost reduction programmes in other areas. To boost their collection capacity, not just in terms of numbers, but also experience some banks used unorthodox methods: some Romanian banks, for example, recruited experienced staff from the leading mobile phone operators, being known for their strong collection practice.
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