It is possible that in 2018 we will reach the BGN 2 billion peak for NPL deals

In July, published a market analysis for debt collection sector in Bulgaria and asked key companies about trends and their expectations. Due to the impossibility of publishing the complete answers, we publish here the expert opinion of Dimitar Bonchev, Director of Business Development at the Debt Collection Agency.

What do you think are the indicators that show most clearly how the debt collection business in Bulgaria is developing? What is your comment on the general development of the market?

The indicators that show the business development are: the dynamics on the overdue receivables market in terms of activity of the sellers, the growth of the sales, profits and the assets that the companies on the sector generate. The return is not the most appropriate indicator when taken out of context, due to strong competition on the market. Given the larger volumes sold in 2017, including secured portfolios, we can predict an increase in the assets and profits.

Along with asset growth, we see an overall shrink in profits in the sector. What is the reason at DCA in particular?

The strong competition definitely has an impact on this trend. Specifically, this is due to higher operating costs, mainly legislative costs and higher staff costs due to the natural, organic development of the company during the year.

What explains the revenue dynamics?

Overall, we have seen revenue growth in the sector, which has been logical in the context of the development of the market for debt sales for the past two years. On the other hand, we have also registered a change in consumer attitudes towards our business – more and more debtors are proactively approaching the debt collection companies and they reach out to us with a desire to find a suitable solution to pay off their receivables. This, in my opinion, is partly due to the improved image of the companies on the market, but also due to the overall improved economic situation in the country and especially the low unemployment rate.

Are there differences in the collection rates among the different categories of receivables – consumer, corporate, secured and unsecured? What does your practice show?

Yes, of course, the industry recognizes the differences and diversifies its product to meet these differences. Therefore, the work strategies are different: in the retail sphere things are much more channeled, the complexity of the process is low to medium, due to the fact that this type of receivables are subject of cessions from 2005 to 2006. Secured and corporate receivables have significantly higher legal and factual complexity which leads to a less secure collection rate and it is more time consuming. The variety of assets that serve as collateral is also a challenge for us in terms of their realization, as the market for some of them is extremely tight.

On average,  what percentage of the receivables are written off?

Financial assets are written off when the contractual rights to cash flows have expired. This is the DCA policy. There is no specific rule or deadline for this.

What are the trends in the debt collection business for this year?

We expect continuity in the trends – larger package deals and more active sellers (banks, non-bank financial institutions, telecoms). We expect first activities from some of the big companies on the financial and telecommunications market. We expect even more active involvement of consultants in the sales processes, which is positive in our opinion. The secured debt market is also developing.

With regard to the operational process, we are working towards expanding current and creating new communication channels, a stronger online presence, and digitization processes, that would add value to our clients’ experience.

Do you expect new players to enter the Bulgarian market and consolidations?

It’s hard to say, but we know that some big companies that are not represented in Bulgaria are looking at our market, but it’s not quite sure whether they will take further actions. It all depends on the market development and Bulgaria is not among the top destinations for large NPL portfolios.  Especially if we take into account the recent volumes of the deals in Greece and Italy where the value of a single portfolio almost exceeds that of all portfolios sold in our country for a year. On the other hand, our market is saturated with representatives of large international companies, as well as local players, and I suppose that if another company enters the market, it would rather be through the acquisition of a local company.

What are the problems that you face and whеre could institutional involvement help?

Certainly, this is not an isolated problem only for us – that is the gray sector that creates serious obstacles for the collection, especially in the courts. The lack of up-to-date information about the debtors (address, telephone) is another hurdle that hinders our communication and the possibility to solve certain situations in a timely manner, and above all without additional costs. In this case the state could give us an instrument, similar to that used in Scandinavian countries, for example, where the creditor is provided with all the necessary information to secure the collection process. Another issue is related to the changes in court proceedings in recent months, which has slowed down the process and overcrowded the courts.

What are your forecasts for 2018 in terms of growth of the industry?

Our forecast is optimistic. We had a strong beginning of the year with the sale of a portfolio whose nominal value came close to half a billion BGN and a few months later auctions were organized for a new BGN 700 million. We believe that 2018 will be a record with volumes over BGN 1.5 – 1 .7 billion, according to the data at the moment. And it is quite possible to reach BGN 2 billion.