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A common misconception about our industry

2 min read

A common misconception about our industry

The Debt Collection activity, as we know it, started in Portugal in the 2000s, Since then its importance has been growing significantly, mainly because of the transformation occurred in the financial sector. After 2008, financial institutions implemented substantial changes in their business models. More oriented towards risk control and focused on profitability and efficiency. As a result, financial institutions came back to basics and to the fundamentals of banking: liquidity reception and credit concession and started doing it in a more fast and rigorous way, by replacing traditional procedures by modern practices.

This change in the paradigm of the financial sector created an opportunity and ultimately the conditions for the appearance of the debt collection industry. If in the past banks had internal teams to execute the work of debt collection, the objective of increasing efficiency and profitability transferred gradually this activity to external entities.

People tend to create ideas about subjects they don't know which usually leads to misconceptions.

One of the 1st misconception that comes to my mind regarding this sector is that those who work in servicing companies are tie collectors ("cobradores do fraque"). In fact, most of the recovery strategies adopted in the past were based on social pressure. But the world has changed, and today the Servicer is a company composed of multi-disciplinary teams dedicated to the recovery of amounts in arrears , with the aim of implementing the best solutions taking into consideration each specific situation. These are professionals oriented towards the resolution of problems that use the scale and efficiency as important allies. And most of the time, don't wear suits or ties……

Another question commonly associated with this sector is that the debt collector takes advantage of the weak situation of the debtor. Let's face it, debt collection is not an enthusiastic phase, and most of the times is associated with economic difficulties of the debtor. Because of that, the solutions include payment plans and agreements that take in consideration the specific situation of the debtor. The role of the Servicer is to collect debts associated to loans granted to individuals/ companies, providing in most of the cases a solution not offered by the originators of those loans.

Companies investing in this sector are usually accused of acting as vultures or opportunistics and the prices involving the sale of these assets are classified as Sales. That is a popular misconception about this sector. What these people forget is that market works, and assets only worth what investors are available to pay. €1.000 in ten years doesn't worth €1.000 today and, the higher the risk the higher the return required by investors. These are simple concepts, that most of the times, people prefer to ignore, avoiding more fundamental discussions.

The reality is that the Servicing Industry plays an important role for the financial sector. It's also because of these services that non-productive assets decrease in the balance sheets of the banks, capital ratios increase, allowing credit concession to grow. Servicers are entities that do something that in the past was already done by banks but…today is done in an efficient manner. And do it in a professional way according to regulations and market practices.

Considering the challenging times ahead it is my conviction that Servicers will, once again, play a critical role for the financial sector and for the economy as a whole.

Luís Chaves

Luís Chaves

Business Development Director

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