Fitch warns of ongoing delays in non-performing loan sales
Fitch Ratings has warned of ongoing delays in the resumption of non-performing loan (NPL) sales, which will limit revenue growth for debt collection firms.
However, the ratings agency added that the medium-term macro outlook for the sector remains sound, with rated issuers still reporting profitability.
Fitch noted that economic instability usually creates opportunities for debt collectors as more NPLs will be come available to purchase.
However, government support schemes during the pandemic have slowed the rate at which new NPLs have been developed, limiting the ability of debt collectors to replenish their books. This has also speeded up collections on existing NPLs, further reducing the pool of loans available to buy.
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“Receipts from acquired portfolios are typically greatest in the early years, so the combination of payment acceleration and slower portfolio replacement makes 2020 and 2021 high collection benchmarks for future comparison,” Fitch said.
The ratings agency added that many banks are already starting to report increases in stage two loans, some of which are likely to become NPLs. However, it added that inflationary pressures on consumers’ incomes may depress collection rates, reinforcing the importance of pricing discipline and cost efficiency amid constrained supply.
“Debt collectors operating in a range of markets, or with diversification across purchasing and servicing activities, are better placed to address these challenges,” Fitch added.
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