CRIF talks about best practices for workout unit optimization in NPL management

CRIF Credit Solutions gave a presentation at the seminar organized by ABI Formazione on “The active management of NPLs”, held in Milan on May 30-31, 2018. The event brought together those working in banks on non-performing loan (NPL) management to look at changes to the regulatory and legislative framework, the derisking strategies of banks, and developments in NPL management models.

The main topics discussed were:

  • NPL management from the perspective of supervision and the legislator: new legislation and regulatory proposals
  • Legislative instruments to facilitate collection process efficiency and NPL disposal: changes to the “Patto Marciano”, the Register of Proceedings, the new Corporate Crisis Code, and developments in securitization
  • From strategy to execution: from streamlining of NPL management and of the revision of internal processes, to innovative UtP management models
  • Evolution of workout activities: segmentation, management strategy, and active outsourcing management
  • IFRS 9 and NPL management: the impacts of stage 3 for less significant banks
  • Active management of real estate collateral

The CRIF presentation, given by Giorgio Costantino, Management Consulting & Solutions Executive Director, and Giancarlo Montorsi, Management Consulting Manager, dealt with the topic of workout unit optimization through clustering and “Champion-challenger” techniques, and optimization of the internal collection and assignment process.

The introduction by Giorgio Costantino outlined the regulatory framework and main drivers for process optimization. “The current regulatory challenges are driving the evolution of processes for the management of collection assignment to maximize the amount recovered, as well as minimization of the pricing gap for the sale of portfolio packages and the immediate “liquidability” of positions”, explained Costantino. “The combined effect of strategy clustering and the review of assignment operating processes enables improvement in the values of the most important Collection KPIs, including the recovery rate, the percentage of provisioning, the FTE of personnel, and the proportion of costs to the collected amount. In particular, the optimization of collection assignment operating processes involves the automation of batch creation, the review of performance and commission calculation for collection agencies, and the reduction of interactions between the institution and the collection agency, commented Costantino.

Giancarlo Montorsi continued, looking in detail at the main strategy clustering drivers and the “champion-challenger” techniques for strategy optimization. “CRIF’s approach is based on the exploitation of all available information assets and involves the supplementation of internal information with variables or models based on data held in the credit reporting system. In particular, segmentation integrates the risk indicator that measures the difficulty of collection with the outstanding amount, which quantifies the importance of collection in a specific case for the institution and determines the impact on provisioning, explained Montorsi. “Furthermore, optimizing the process also means stimulating the performance of specialist external partners, keeping the costs in check. In this regard, the most recent project experience suggests introducing “champion-challenger” approaches to external workout processes in the management of collection agencies, and reassessing commission structures with the dual aim of encouraging the supplier to achieve high performances while at the same time safeguarding the sustainability of the business partnership. By managing to combine these levers, it is possible to activate a “virtuous cycle” to attain considerable improvements: the benchmark data coming from project experience show, for example, increases in the recovery rate (30-60 dpd) by up to 15% and reductions in the roll rate towards default of up to 21%”, concluded Montorsi.

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