End-to-end
management of
NPL portfolios
Silvia Cappelli
Madrid – 23/09/2016
Outline
 Scenario
 Special Servicing: role and
objectives
 The advantage of a complete
set of information
 Portfolio analysis:
clustering and benchmarking
 How to handle and optimize
CRIF COMPANIES AROUND THE WORLD
©2016 • Name Surname • day/month/year
CRIF, THE END-TO-END KNOWLEDGE COMPANY
Information
•
•
•
•
•
Credit Bureau Information
Business Information
Big Data Solutions
Fraud Prevention
Property Information
• Personal Solutions
• Information Bureau Platforms
Solutions
• Advanced & Big Data Analytics
• Risk & Management Consulting
• End-to-End Credit Management Platform
• Configurable Products
Outsourcing & Processing
• Business Process Optimization
• Credit Collection
• Real Estate Valuation
CRIF Ratings
• Solicited & Unsolicited Ratings
• Private Ratings
• Issue Ratings
©2016 • Name Surname • day/month/year
Lesson learned: regulation is a driver
2013
2014
2015
2016
2017
2018
New data required
on NPLs
NPL
inspections
Comprehensive
Assessment
AQR – Stress test
SSM
Single Supervisory
Mechanism
Mortgage
Directive
Public consultation
on guidance to banks
on NPLs
ANACREDIT
Mortgage Credit Directive
implementation
RAF - Risk
Appetite
Framework
BASEL 3
Capital Adequacy
Leverage
Ratio
NSFR
LCR
Supervisory Review
and Evaluation Process
(SREP)
Mortgage Lending Value
IFRS 9
Collateral
Monitoring
5
Towards a New Growth?
Trends of Loans in Italy
by bank size (monthly data; % y-o-y change)
Top five
Other
Small banks
Minor banks
Foreign banks
Overall
Source: Bank of Italy
NPL scenario in Italy
NPL Stock
•
2015: Gross NPLs €200 bn – Gross NPLs/Total Loans = 11.6%
&
•
2008: Gross NPLs €50 bn – Gross NPLs/Total Loans = 2.5%
NPL/Total
Loan Trend
… and new NPLs > resolved NPLs
Gross NPL Trend
The NPL volume is
unsustainable in terms of:
•
•
Source: ABI, Banca d’Italia
7
Capital ratios
Production capacity
2 possible solutions:
SALE
BANK
1
2
Expected net
collection
Discount
rates
≈
44%
≈
3-7%
INVESTOR
Bid – Ask spread
≈
32%
≈
15%
Sources: ABI (Dec 2015) and CRIF experience
8
OUTSOURCING
MANAGEMENT
For the segments in which the
Bid-Ask spread is not
financially sustainable, the
solution for banks is to
outsource the management of
the NPL portfolio
The potential «market» volumes indicate the required investments
and developments within the context of NPL Servicing
Amounts in millions of €
Originator
Cluster
1
Credit
type
UNSECURED
BANKS
SECURED
2
3
CONSUMER
CREDIT
-
NON
FINANCE
UNSECURED
ORIGINATOR SIDE
Borrower
type
NPL Stock
2015
COMPANIES
91,300
43%
CONSUMERS
18,700
9%
COMPANIES
74,600
36%
CONSUMERS
15,300
7%
CONSUMERS
10,000
5%
COMPANIES
UNSECURED
CONSUMERS
COMPANIES
4
UNSECURED
CONSUMERS
SECONDARY
MARKET
COMPANIES
SECURED
CONSUMERS
Sources: ABI & confidential data
9
ND
ND
ND
Expected
growth
2016-2020
Around
€ 200 bn
INVESTOR SIDE
Deals 2015
Deals 2016
Forecast
12,600
68%
16,800
68%
3,000
15%
3,000
12%
380
2%
380
2%
420
2%
420
2%
3,000
15%
4,000
16%
500
3%
Around € 20 bn
concluded
Around € 25bn
expected
The Servicer plays a key role...including in the reduction of the
Bid/Ask gap
Players
Main categories
Originators
Investors
Servicers
•
Banks and Financial Institutions - Financial NPLs
•
Non.Finance (Utilities; Telcos; etc.) - Commercial NPLs
•
Investment funds: e.g. Cerberus; Anacap; De Shaw; Fortress; etc.
•
National banks: e.g. Banca IFIS; Banca Sistema; Banca Finint; etc.
•
Others: e.g. Debt Buyer Companies (Pra Group); international banks; registered under art.
115 of the Italian Public Security Act; etc.
•
Master Servicer: for the Special Purpose Vehicle (securitization), mainly dealing with
administrative/accounting aspects and relations with the Bank of Italy. Must be registered.
•
Special Servicer: under the direct mandate of the Originator or Investor (which may have
acquired the receivables through an SPV), dealing with the management and collection of
NPL portfolios through legal and out-of-court actions
Transfer
The receivables
remain on the
balance sheet of the
Originator, which
outsources the
management to one
or more Special
Servicers.
Originators
Investors
Master Servicer
1
NPL management
on behalf of the
Originator
Special
Servicer
NPL management
on behalf of the
Investor
Servicing Agreements generally provide for expected results (and only in some cases
also the means), defined and shared through a Business Plan
10
The receivables are
acquired without
recourse from the
Investor who use
one or more special
servicers for
portfolio
management
2
What is required from a Servicer for best portfolio management
Objectives
Increase
Enabling factors
 Understanding the potential of the portfolio
1
Collection
Decrease
2
Time frame
of collection
Decrease
 Vertical and multi-disciplinary skills
 Bulk processes (legal and out-of-court)
 Credit Risk Knowledge
 Efficient and scalable sourcing chain
3
Costs
11
 Automation and technological solutions
CRIF Servicing: Approach
WHAT WE
DO
CRIF offers itself as a strategic partner to banks and financial institutions in role of
independent Servicer for the optimum VALUATION, OUTSOURCING management and/or
TRANSFER of non-performing loan portfolios
• Understanding of the value and potential of the portfolio through targeted data enrichment
and operating benchmarks (legal practices and market performance)
• Portfolio monitoring (borrower/guarantor assets; borrower/guarantor risk profile; collateral
market prices; prejudicial info relating to collateral; etc.) as well as performance
WHAT
APPROACH
WE TAKE
• Acceleration of legal solutions, for both the secured and unsecured portfolios, where
necessary incentivized by the start of legal proceedings
• Structuring of the Business Plan and definition of management strategies with provision for a
transfer scenario («exit strategy» which is optimized thanks to data enrichment and
market-oriented segmentation)
12
External drivers for portfolio segmentation: sources
CONTACT INFO
PROPERTY ASSETS
RISK PROFILING
Tracing
CREDIT BUREAU
PROPERTY
VALUATIONS
BUSINESS
INFORMATION
PROPERTY
REGISTRY
LAND REGISTRY
Corporate
Retail
COMPANY PROFILE
BUSINESS
INFORMATION
13
PERSONAL PROPERTY
ASSETS
Investigations
NPL segmentation and benchmarking: method and aims
Borrower type
Credit type
External data
Credit Bureau
SECURED
(mortgage)
Financial
System
Land
Registry
RETAIL
!
UNSECURED
Credit Bureau
SECURED
(mortgage)
Financial
System
Land
Registry
CORPORATE
!
UNSECURED
Bank
14
1
2
N
Information on
priority of actions
Property
Registry
Bank
BENCHMARKING
TARGETING AND
STRATEGIES
QUERYING OF EXTERNAL SOURCES OF INFO
Internal data
Positions reported as nonperforming in the credit
bureau by Bank X
!
Infocamere
Court
Shareholder
List
Aim: to identify
«bulk» processing
strategies and
priorities for
individual clusters
in order to improve
collection
performance
Property
Registry
An NPL portfolio is selected (e.g.
«competitor» bank cluster) as a benchmark
and the same analyses are carried out
Comparison
between Bank X
NPL portfolio and
benchmarks
Segmentation of the NPL portfolio through credit bureau data:
examples of application (real case for Natural Persons)
BANK X EXPOSURE
Data in % GBV
Total
delinquent
loans of
institution X
Natural
person
borrowers
Linking of
credit bureau
data on
Borrowers/Co
-borrowers
coming from
notifications
from other
institutions
(where
present)
15
Credit type
SECURED
SYSTEM EXPOSURE (CREDIT BUREAU)
Sharing
SHARED
26.0%
(Vol.
mortgage)
48.8%
EXCLUSIVE
22.8%
Notifications
NO
DELINQUENCY
13.0%
DELINQUENCY
13.0%
UNSECURED
DELINQUENCY
22.1%
51.2%
EXCLUSIVE
19.7%
 Performing mortgage
2.9%
 Non-perf. unsecured
exposures
8.7%
Slight risk of claim
on property used
as collateral by
other institutions
NO
DELINQUENCY
9.5%
SHARED
31.6%
Type of exposure
Business Case
Risk of Lien
from other
institutions
Target
AVS
 Performing mortgage
2.7%
 Non-performing mortgage
3.6%
Slight risk of real estate
asset or income seizure
by other institutions
Target AVS
Assisted
Voluntary
Sale
Target
Loss
Mitigation
Target
Loss
Mitigation
Possible
action if
property
value
>residual loan
(from loan
installment
plan…)
Segmentation of the UNSECURED NPL portfolio through Land
and Property Registry data (real case - Natural Persons)
Total
subject data
INPUT
 Borrower/
Guarantor
identification details
with UNSECURED
NPL exposure
16
No Land
Registry
LAND REGISTRY
"Value"
Filtered
LAND REGISTRY
AVM
 Verification of
national tax
code/VAT no.
 Property
category
 Ownership share
 Property value
(AVM)
 …
Business Case
"Encumbrance"
Filtered
PROPERTY
REGISTRY
 Voluntary
mortgages
 Liens
 Trust funds
 …..
Target
subject data
OUTPUT
 Borrower/Guarantor
identification details
with seizable real
estate assets
 Property details
Example of segmentation through source integration:
Land registry - Property registry - Credit bureau
CREDIT
BUREAU
Voluntary
mortgages with
«capacity» are
verified from
credit bureau
analysis
3%
Total
subject data
No Land
Registry
"Value"
Filtered
"Encumbrance"
Filtered
Target
subject data
Subject data with real estate
assets that can be seized
with «LOSS MITIGATION»
strategy have grown to 15%
17
Business Case
In summary, key tool for enhancing the portfolio under
management
 Optimization of the understanding of the portfolio through
intelligent data enrichment which makes use of all available sources
 Bringing forward structured out-of-court processes (both on secured and
unsecured portfolios) and using specialist operators (asset managers) to bring
forward collection and reduce costs
 Work on the quality and completeness of internal data and of the
documentation in a way that reduces the % failure
 Introduction of new management methods (e.g. garnishment) that have not yet
been initiated/tested
 Reduction in sourcing chain costs allowing suppliers to reach a useful critical mass
 Adoption of technological solutions that enable automation and control
18