NPL market challenges in 2022: an interview with Alexandros Efstratoglou, BD Director at Relational
Relational, 23rd of May 2022
With the pandemic tailing off in 2022, it has been speculated that 2022 would be a year of recovery. In light of record oil and gas prices, is recovery still a realistic target?
- GDP growth forecasts are lowering, and in some markets declining, so recovery is likely to be delayed
- Inflation rates are increasing and less disposable funds for consumption are available
- Some industries including hospitality, travel and retail might never recover to pre-pandemic levels
- Government Covid subsidies have practically disappeared, companies not well prepared for the hard times are in trouble – business closures, staff redundancies etc. to follow
- If avoiding recession can be considered as recovery, maybe 2022 is ok
The Ukraine conflict has influenced oil and gas prices, and economic sanctions are limiting global trade and the financial markets. Would you see this as a longer-term challenge?
- Without going into the conflict details or politics, even with a quick solution to cease the conflict, there will be long-term challenges ahead
NPL markets are expected to grow in 2022, and to include new types of loans, with SME loans, unsecured consumer loans, credit cards and mortgages expected to come into the mix. What challenges and changes will these types of loans bring to debt recovery and collections players?
- Different types of borrowers to deal with, different collection methods, consumer protection limitations, very limited assets for recovery, SME sector and personal bankruptcies leading to 100% losses
- Mortgages can have underlying asset value, however, much depends on the quality of the original valuations made.
How would you see the servicers reacting to these market changes? Do they need to adjust their operations to the changes?
- System, Processes, People and Data have been, are and will be the key elements to take under consideration.
- Operational and cost efficiencies are the main factor so they need to look into their internal processes and procedures
- The manual bulk operations won’t be good enough anymore so investments in technology are essential.
- Transition to cloud/ Omni channel Approach/ Additional communication mediums (Self Service portal/ Chatbot) are some of the technology trends to be implemented.
- The financial strength to convince portfolio owners to trust that the services are delivered as promised.
- Within this framework, we will see consolidation, with mergers and smaller / weaker players disappearing
What are the three top challenges facing the NPL market?
- Data quality
- Detailed and reliable portfolio status available 24/7
- Accuracy and Speed of onboarding of portfolios, taking under consideration that the secondary market for some countries ( e.g Greece) will now begin and/ or new waves of NPLs are expected across the board, resulting from the pandemic and respective macro factors.
Are the players ready to meet these challenges and, if not, what should they do?
- For various reasons the data quality is not good enough, whether you are the portfolio owner / investor or servicer
- Databases are from different historical sources, too often created manually, no feasible migration possibilities, no reliable reporting capabilities
- Review the IT used and upgrade / replace options
What would you recommend the players should do to secure their future success?
- The Relational commercial proposition = “talk to us”!!
