Receivables Management: Slowing Down the NPL Wave with Digital Processes

Germany’s credit institutions find themselves in a dangerous paradox due to the Corona crisis: On the one hand, loan applications are flooding the financial institutions. At the same time, there is the threat of bad loans. It is essential to act quickly and with a cool head. But how?


“The calm before the storm”, “Expecting the worst and hoping for the best”, “When will the NPL wave come?” – when editors of financial media look at the status quo of the lending business in times of pandemic, one thing seems clear: the bad loan ratio could soon become a major problem for many banks.

Currently, institutions find themselves in a difficult balancing act:

Many SMEs in sectors hit by Corona need liquidity to overcome bottlenecks – fast. According to the latest “Finanzierungsmonitor 2020 – Corona Update”, 88% of German SMEs say that speed in raising debt capital has become much more important in the current crisis.In the judgment of the entrepreneurs, many banks could not meet the necessary time requirements.

The volume of loans classified as “non-performing” in Germany in the third quarter of 2020 was around €33.3 billion, slightly below the amount in the second quarter (€33.9 billion). By comparison, the volume in the third quarter of 2016 had still been €65.2 billion. Experts expect a strong trend reversal. (Source: Statista)

There is no doubt among experts that the number of non-performing loans (NPL) will rise at a later point in the credit lifecycle. Rather, the question is: how bad will it get? “The increase in the number of non-performing loans can be assumed as certain,” predicts Andreas Dombret, Global Senior Advisor at Oliver Wyman in a column for Handelsblatt. Even if estimates of the extent diverged widely. Conversely, high speed is also essential for the processing of those expected problem loans.

The crux of the matter is that the staffing levels of the departments responsible for processing NPLs have shrunk considerably in recent years. Highly automated software support is indispensable to cope with the impending flood of NPLs.

The fact that the industry itself would also like to see more flexibility in NPL processing is the result of a 2019 study entitled “Digitalization – The Commercial Credit Process in Transition.” For this purpose, the Hamburg-based consulting firm PPI AG had surveyed savings banks and cooperative banks on their level of digitalization. One result: The change of an exposure to the NPL area requires time-consuming manual activities at the majority of savings banks and cooperative banks. Only 40 percent of the institutions use an automated process for the transfer; at the same time, 60 percent see a higher effort for NPL transfer. Further digitization and automation measures, according to the institutions’ assessment, could provide relief here.

The Collenda Collections & Recovery solution can do just that. It maps the collection process in a fully integrated manner. “From the early detection and efficient processing of payment disruptions to the monitoring and recovery of terminated contracts,” explains Anke Köster, Product Owner at Collenda. Collenda’s C&R platform offers numerous features: the takeover of receivables and collateral, the termination of the credit commitment, the initiation of a dunning procedure including titling (an automated dunning procedure without supporting documents is also possible). “Our cloud-based solution, which is now used by more than 500 banks, also enables an omnichannel approach to debtors by mail, SMS or letter – from within the system,” explains Anke Köster.

It is no longer a secret that there is no way around digitization if banks are to survive in the market in the long term. Not only because 70% of banking transactions are now conducted online. Moreover, the true consequences of Corona will only become apparent once the comprehensive aid measures, including the suspension of the obligation to file for insolvency, have expired.

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