Kruk S.A.

The report compiled by the Gdańsk Institute for Market Economics (IBnGR) shows that in 2014 the value of the Polish debt collection market will reach PLN 22.2 billion. Debt collectors will have more work as the market has been increasingly outsourcing debt collection services and as the number of consumer loans and housing loans granted has been growing. A bigger number of non-performing loans will be a natural consequence of the above increase.

As the most recent report prepared by the Gdańsk Institute for Market Economics called “Receivables Management Market in Poland and Its Development Outlook Until 2014” shows, in 2009 the value of the Polish debt collection market stood at PLN 14.3 billion. By 2014 it may grow to nearly PLN 22.2 billion. The total value of debts outsourced for collection will increase in comparison with 2009 by PLN 7.9bn, up by 55 per cent. Despite its relatively short history, receivables management has been among dynamically growing sectors of the Polish economy. The tools, technology and customer relations principles used in debt collection are in accordance with European standards. However, the significance of the sector for the Polish economy is not yet as big as it is in highly developed countries. Therefore, the Polish receivables management sector has a huge growth potential and its role is growing.

“In the coming years, the Polish debt collection industry will develop very dynamically,” says Bohdan Wyżnikiewicz Ph.D. of the Gdańsk Institute for Market Economics, author of the report. “Several factors are behind the above expected growth. First of all, so far, the Polish market has been characterised by a smaller saturation with housing loans, consumer loans and other credit products than Western markets. Therefore, lending and the debt of households will be on the increase. In 2014 they will reach PLN 715 billion, up by nearly three fourths on 2009. What is important from the point of view of the debt collection sector is the fact that a large share of the above debt will be non-performing loans. In 2009, the loss rate on the most difficult loans (consumer loans) stood at 9.6 per cent. Our estimates show that in 2014 the above value will be 9 per cent. In 2009, the loss rate for mortgage loans was 1.8 per cent and by 2014 we expect it to drop to 0.8 per cent. In 2014, the worth of non-performing portfolio will reach PLN 27.3bn for consumer loans and PLN 3.3bn for housing loans. The above is of key importance for the debt collection industry and it forecasts the sector’s dynamic growth in the coming years,” adds Bohdan Wyżnikiewicz Ph.D.

Also important for the debt collection industry is the forecasted growth of the credit balance in the business sector. In 2009 it stood at PLN 207bn and in 2014 it may reach as much as PLN 283bn. The above would mean an increase by 36.6 per cent. In 2009, the loss rate on the above portfolio was 12.4 per cent. It is a lot. We can expect that business creditors will want to reduce the loss rate on the above loans and will place a portion of the accounts for collection to specialised debt collection companies. In 2014 the loss rate on business debt is expected to drop to 7 per cent.

“The receivables management market has been developing also thanks to the tendency to outsource collection services and to sell non-performing portfolios which have been growing year after year,” says Piotr Krupa, President of the Board of KRUK SA. “For the past couple of years we have been witnessing a growing propensity of businesses to outsource the debt collection function. In the context of continuous growth of the value of bad debts, companies that do not have strong collection departments will be unable to recover their receivables. It concerns in particular small and medium-sized businesses. And in the case of larger entities the cost of maintaining an in-house collection department very often exceeds the revenues from collection,” adds Piotr Krupa.

The report by IBnGR shows that the propensity of banks to outsource the collection of small-value loans will increase from 27 per cent in 2009 to 31 per cent in 2014. Banks have been more and more often outsourcing the recovery of non-performing mortgages. In 2009, debt collectors handled 15 per cent of such accounts. In 2014 it can be expected that collection of one fourth of mortgages will be outsourced. Sales of non-mortgage debts will go up from 14 to 20 per cent. In the case of mortgages, the growth will be from 7 to more than 39 per cent. IBnGR forecasts that non-performing business loans will go up from 22 per cent in 2009 to one third of their value in 2014.

“The effectiveness of debt collection companies will be also growing as a result of development of credit information bureaus,” says Piotr Krupa. “Taking into account the experience of other countries , we can expect that the significance of credit information bureaus will be growing also in Poland. Their growing role will have a major impact on the effectiveness of collection processes, and consequently on the effectiveness of the entire sector,” adds Piotr Krupa.

The report prepared by IBnGR inspires two reflections which are important from the point of view of a statistical Pole. The debtor profile has changed. Currently, a debtor is no longer an unreliable consumer intending to cheat the creditor. The above was the case a decade ago. Today, people with debts are most often honest consumers who simply found themselves in financial problems as a result of e.g. loss of job, divorce, death of family member or serious disease. The second most frequent reason of going into debt is overestimation of one’s financial capabilities and incurring debt that is higher than income. However, most frequently, the obligations are incurred in good faith. The above change forced a modification in the approach of debt collection companies to debtors. Today, a debt collector serves as an advisor who will help find a favourable solution to the debtor’s problem. One of the advisor’s proposals may be to arrange repayment of the debt in installments or to adjust the installments to the current financial situation of the debtor.

IBnGR report also shows how important the debt collection sector is for the Polish economy. Payment arrears between companies and consumers and between businesses have negative effects not only for the creditors who do not get what they are owed. The above situation also has macroeconomic implications.  Unpaid consumer debts cause an increase in the prices of services, i.e. higher bills and HP installments for good payers. Large-scale payment gridlocks between businesses lead to reduced trade and general economic slow-down. The above is not without an impact on the state budget. The purpose of debt collection processes conducted by specialised companies and law firms is to bring back the highest possible amount of money back to the economy. Thanks to the above, the negative macroeconomic effects of debt are significantly reduced. Also, more money remains in the pocket of every good payer.

The first report about the debt collection sector was prepared by the Gdańsk Institute for Market Economics in 2004. The purpose of the most recent report is to diagnose the current situation of the receivables management industry, present its new phenomena which and forecast the sector’s development until 2014.
The report was compiled on the basis of data obtained from a survey conducted among debt collection companies and among small and medium-sized enterprises, as well as on the basis of the institute’s own analyses of the Polish economy and market.