SELLING A MIXED RETAIL PORTFOLIO IN CEE INVESTOR VIEW. Collections Europe 2015 June 11 th 2015 Martin Musil

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1 SELLING A MIXED RETAIL PORTFOLIO IN CEE INVESTOR VIEW Collections Europe 2015 June 11 th 2015 Martin Musil

2 Intrum Justitia in brief Europe s leading provider of credit management services and financial services with operations in 20 countries Revenue 2014 FY: SEK 5.2 billion Approximately 3,800 employees Listed on Nasdaq, Stockholm, Large-Cap Worldwide network of more than 160 agents Expertise since 1923

3 Developed retail credit market has grown slowly, but CEE markets continue to grow almost 5x quicker Total outstanding European retail credit E, ( TN) Developed markets (GDP per capita > 15 K) 12.5 CEE Region (AU, HU, PL, SK, CZ) E E SME loans Other personal loans Mortgages CAGR E SME loans 6% 2% 3% OPL 1% 3% 2% Mortgages 3% 3% 2% CAGR E SME loans -15% -1% 23% OPL 35% -7% 5% Mortgages 53% 17% 12% Source: ECB, Oxford Economics, OECD, Oliver Wyman analysis

4 We see large variations in non-performing loans (NPL) across markets and loan types, CEE region is quite stable - except Hungary NPL ratio by country, by loan type Developed countries Emerging countries NPL ratio (%) Cyprus Greece Ireland Italy Slovenia Spain¹ Portugal Malta Belgium Austria Netherlands France UK Denmark Luxembourg Germany Finland Switzerland Norway Sweden Hungary Latvia Russia Slovakia Czech Republic Poland Turkey Estonia Total retail NPL ratio Mortgages Other personal loans SME loans 1. Excluding SAREB Source: EBA, ECB, Oxford Economics, OECD, Euromonitor, Central bank data, Oliver Wyman analysis

5 Region Central Europe Source: EBA, ECB, Oxford Economics, OECD, Euromonitor, Central bank data, Oliver Wyman analysis Poland facts Total retail credit: BN EUR Total NPL ratio: 3.56 % Total NPL volume: 4.7 BN EUR Main PD segments specifics Banks / Finance Utility Stabilized and competitive market Established court and bailiff system, however still experiencing a significant overload across the court Central Europe facts Slovakia Total retail credit: 23.8 BN EUR Total NPL ratio: 5.27% Total NPL volume: 1.3 BN EUR facts Czech Republic Total retail credit: 52.2 BN EUR Total NPL ratio: 4.53% Total NPL volume: 2.4 BN EUR Main PD segments specifics Banks / Finance Telecom Tax depreciation issue in banks, problem with limitation period Consumer protection law Main PD segments specifics Banks / Finance Telco Personal data protection Lawyers companies is active as a buyers facts Hungary Total retail credit: 28.1BN EUR Total NPL ratio: 17.79% Total NPL volume: 5.0 BN EUR Main PD segments specifics Banks Strong regulation for bank debts 5 Austria facts Total retail credit: BN EUR Total NPL ratio: 4.09 % Total NPL volume: 6.3 BN EUR 6(23) Main PD segments specifics Banks Telecom No clear legislation for buying Bank license is needed

6 3 rd parties continue to play an important role in managing NPL portfolios in Europe, either as purchasers of distressed debt or as suppliers of services Efficient outsourcing of parts of credit value chain to 3 rd parties Management of parts of the portfolio Handling of capacity constraints Administration of specific activities Net performance 5 Branding Outsourcing management of parts of debt portfolio (e.g. specific segments or geographies) In particular where bank not have critical mass to create best-in-class collection operations Capacity managed in the short term through hiring/outsourcing Hiring/Outsourcing program in place to deliver sustainable, cost-effective capacity Outsourcing of core business capabilities, debt sales, client call centre Outsourcing of support functions, e.g. legal Achieve higher net performance through benchmarking exercises relative to external players Offer consistent challenge to internal collection specialists on, e.g. collateral valuation Do tougher collections without using the bank s brand and avoid negative publicity due to repossession procedures Use of independent mediator with an amicable approach to debtors (actions aligned with the bank brand)

7 What is the main reason for selling a retail portfolio? 1 Financial reason 2 Cost reduction 3 Capacity problems 4 5 Focus on core business Increase liquidity, Cash Flow Clean balance sheets P&L results Not only direct collection costs Higher effectivity / Limitation of external partners (lawyers/ Bailiffs) Investment limitation (personal / technical) Scalability of resources Free resources for core business Buyer is professional collector Risk elimination Accumulation of bad debts Mistakes in process (limitation period, bankruptcy/insolvency...) To make the right decision about what to do and what to pay banks need a clear understanding of inhouse costs and performance and of the external provider s likely performance, usually based on batch-based assessment

8 Decision for sale what steps have to be done Portfolio definition (What & When) Data preparation Preparation for sale Pricing Closing Definition of internal drivers Why sell Define condition What sell Legal limitation Internal profitability calculation Data collection & validation Documentation scanning & PDF Segmentation Investor selection Define Time frame Cut off date NDA Guarantees preparation Single batch / Multiple batches One time sale / forward flow 1 round / several rounds Envelope / e-auction Payment Legal obligation File & documentation transfer Legal cooperation Fulfilling of guarantees How to get more?

9 What Investors like?

10 What I can do during whole process to get more! Data quality is crucial Save contact information (even not active) Payment history is a must Add basic information about collection process Portfolio structure Balanced volumes rather bigger batches than many small Consistent segments with no cherry picking Regular sales is better than one offs Prepare acceptable guarantees Cut-off day Clear conditions for refunds Definition of documentation (time frame and completeness) Be honest in your internal effectivity calculation Good external partner in most cases is more effective! Keep open discussion with your partner!

11 How to get more? Selling debts is not only last stage of collection process Information cost gold Long-term partners brings more Consider all condition, price is not only one issue Be transparent and trustful

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