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 Debt option B: Bad Debt remains in the Original Bank
‘SAREB’ & NAMA’ model bad assets transferred to nationalized financial institutions
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
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
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
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
Practice Area Clues
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
Practice Area Clues GAPS
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
Practice Area Clues GAPS System
Support
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
Practice Area Clues GAPS System
Support ( Y/N/ Partial )
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
Practice Area Clues GAPS System
Support ( adapt fast )
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
Practice Area Clues GAPS System
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?
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)
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