Secured portfolios niche opening up in Bulgaria, Croatia and Romania

Rayna Mitkova, EOS Matrix Managing Director

EOS Matrix Ltd. is part of the German leader in financial services EOS Group, which is one of the biggest international providers of personalized financial services. The main focus of the Group is the debt management in three main services: secured and unsecured debts purchase, debt collection and outsourcing of business processes. With over 7,000 employees and over 60 subsidiaries, EOS offers flexible solutions to strengthen the financial health of over 20,000 customers in 26 countries. EOS Matrix Ltd. has been present in Bulgaria since 2002. Currently, EOS has more than 350 employees in Bulgaria. EOS Matrix is also a co-founder of The Association of the Collection Agencies in Bulgaria (ACABG).

What are your expectations regarding the value of NPL transactions on the local market/ in SEE in 2019 and over the next few years?

During the last years in general we are observing a growing market. For 2018 the investments in Bulgaria alone exceed 1.2 billion euro, compared with 800 million euro the previous year. One of the rather new trends is the opening of the secured portfolios niche in many new markets such as Bulgaria, Croatia and Romania for example.

Despite the positive tendencies for improving asset quality, Bulgaria still needs to face the challenge of a high proportion of bad debts. Speaking of NPL, our expectations for debt purchase deals in 2019 in terms of face value of portfolios are that the unsecured market will reach around 300 million euro and the secured market is expected to exceed a billion euro.

The corporate sector faces the challenge of inherited bad debts which hamper credit activity. Last year was particularly active in Bulgaria, with several big deals.

How do you see NPL levels in Bulgaria/SEE going forward?

The activity on markets that have already coped with most troubled loans is likely to gradually wane off at the expense of transactions with other types of assets – leasing receivables, subsidiaries of financial institutions serving platforms. The reason for this trend will be consolidation in the banking sector and banks’ efforts to restructure by removing assets beyond their core business. For other countries, larger deals are still expected – these are the markets that will end up in the final phase of clearing up bad assets and improving balance sheets.

Behind the big numbers of the expected portfolios, the banking system in Bulgaria is facing overliquidity combined on the one hand with merging between the banks and on the other with long precession process preparation, all of that leading to hardly predictable market depending on single one-time big deals.

SEE businesses have been among the most unpunctual payers in Europe in the past few years, according to the EOS annual surveys. How do you expect this trend to develop?

The companies find a solution in partnership with debt collections agencies – 44% of the Bulgarian business uses the services of an external expert (an increase of 2 points compared to 2017). Five years ago, Bulgaria was at the bottom of the European ranking on this benchmark, now catching up with the average European levels and currently taking the second place after Germany. This progress clearly shows that the confidence in debt collections companies increases – 66% of respondents in the survey say that debt collection companies encourage good payment practices in society. The result is that Bulgaria ranks first in Eastern Europe in returns through debt collections companies – 11.1% of company turnover was recovered thanks to outsourced receivables management services.

Will the efforts of Bulgaria, Romania and Croatia to join the Eurozone and Banking Union affect the local NPL market?

In its bid to join the single currency Bulgaria has made commitments to strengthen its bank and systemic supervision, as well as to strengthen the supervision of the non-bank financial sector and anti-money laundering framework. Part of these efforts is addressing gaps in the insolvency framework. Poor insolvency regimes and inefficient judiciaries are a key reason for the slow pace of NPL resolution in many member states, where provisioning is often inadequate. Different creditor rights and problems with enforcement present a challenge for integration between national financial markets. In the case of Bulgaria, the average time to resolve insolvency is over three years, by no means the worst in the euro area.