Focus on Romania: economic downturn, increasing defaults and collections
Romania's strong GDP growth moderated markedly in the last quarter of 2008 as the country began to feel the effects of a global downturn in financial markets and trade. Inflation in Romania rose in both 2007 and 2008, driven in part by strong consumer demand and high wage growth, rising energy costs, a nation-wide drought affecting food prices, and a relaxation of fiscal discipline.
It is estimated that by the end of 2009, over one and a half million Romanians will be black-listed in the credit information databases of Romania. Across the board, in banks, credit bureau organisations, telecommunications, financial services, credit institutions, collection specialists and bailiffs are reporting a radical change in payment behavior in Romania.
The economic downturn and financial crisis have resulted in an increased sensitivity to the threats of financial wellbeing both from a personal and family perspective as well as in the commercial arena. This is leading to people thinking twice before borrowing and even withdrawing from both spending and paying debts.
For example, since the start of 2007, over four million Romanians took out at least one loan from the bank or other financial services organisation, with around 33 percent of them subsequently becoming debtors. An estimated 7 percent of total loans taken from banks became bad debt by the end of 2008.
With this dramatic change in the collections landscape, companies wanting to re-coup outstanding debts have had to implement adjustments that recognise the new patterns of customer behaviour in Romania.
One of the major telecommunication operators in the Romanian market looked to quickly adapt credit and collection management strategies. The operator's strategies are aiming to improve the payment behavior of Romanians through tackling and balancing both their ability and willingness to pay the bills. A five-fold profile for effective credit and collection strategies in times of economic downturn and financial crisis has evolved from this experience:
| 1 | Agility - Through timely and quality business decisions based on credit risk scoring over customer life, champion-challenger and optimisation exercises. |
| 2 | Customer-oriented - Utilising delinquent and debtor customer satisfaction surveys and both “caring and daring” tactics for the customer's rehabilitation. |
| 3 | Executed superbly - By calling default customers during the most lucrative moments of the day and week, by engaged employees, and investing in training to support this were it is required. |
| 4 | Activity-based costing decision - In respect to credit vetting and debt collection activities, to solving the dilemma of either in-house production, or outsource, or insource back - from in-house early collection to factoring, debt sale and forward flow. |
| 5 | Ambidexterity - To successfully work both bad debts and customer churn after the non-payment has occurred. |
Such a management toolkit, if expanded significantly to creditors' business environment, may leverage the opportunity for the entire credit and collection industry, to successfully collect the bad debts in line with financial prudence. If implemented and utilised effectively, it could also lead to a greater level of socially responsible lending, with both the organisation and their customers more understanding to the requirements of the other.
Greater consideration about consumers' credit worthiness could assist in recovering debts with more respect and human understanding, especially in times of economic downturn and financial crisis.
Carmen Mincu
Decision Analytics
Experian
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