Intrum Justitia

Information Requests 2008-10-04

Polska nadrabia dystans do Zachodu i popada w coraz większe długi

WYWIAD „The Wall Street Journal Polska" rozmawia z Michaelem Wolfem, prezesem firmy Intrum Justitia specjalizującej się w windykowaniu należności

Intrum Justitia has been present in the Polish market for 10 years. What is your assessment of the current development stage of the debt management services market?
M.W: As far as Eastern Europe is concerned, Poland is in the lead; however, when compared to Western Europe, Poland is still an emerging market. The way Polish consumers are reacting to developments is what we saw in Western Europe 10 years ago. Still, your economy is catching up very fast. On the other hand, this "process of catching up" poses a threat.

Why is that?
M.W: Fast growth is accompanied by numerous problems. As initially in Poland there was very little activity in terms of consumer loans, the market was soon inundated with consumer loans. During the economic upturn, the retail loans market grew by as much as 40% a year. Under such conditions, the percentage of loans in default at a level of 7-8% is not a problem. However, when the growth rate goes down and stabilizes at 6-7%, the banks will not be able to afford to offer so many loans. You are already facing a large number of liabilities being unpaid, although it has to be said that this quite normal given the particular stage of development Poland is now in.

With the continuing banking crisis, borrowers are having more and more trouble repaying their debt – does this mean Intrum can expect good business?
M.W: Working with the consultancy Oliver Wyman, we have conducted research on the present state of retail banking in Europe. In 2002, total retail debt, including mortgages, amounted to 4,5 thousand billion EUR, while in 2007 the figure reached as much as 7,5 thousand billion EUR, which equalled 55% of the European gross domestic product. Over this period, economic growth was 10% annually, and in Eastern Europe - even 40-50%. Obviously, this figure is too high – and that is why we are in the midst of a credit crisis. According to our estimates, by 2010, retail loans totalling around 120-150 billion EUR will have to be written off, with the largest proportion being written off in the year 2009. This is quite an opportunity for us.

And what about Poland?
M.W: Poland as well as other Eastern European countries will face the peak loss period for the retail loan segment a little later, simply because of this "catching-up process" . Unfortunately, there are many signs indicating that you are following the same path as Western Europe did, and you are going to make the same mistakes.

Intrum Justitia is launching a new strategy called Brand Promise. You are transforming, from a traditional debt collection company to a consulting business engaged in receivables management. Why this change in your profile?
M.W: We are fully aware that if we do not enhance our offering with this element, we will have difficulty winning new accounts. And customers will perceive our services as based only on pure transactions, whereas we are keen to demonstrate that we can actually build, and contribute to, their relations with customers. If they put their trust in us, they will contact us sooner; the sooner they come, the more we will be able to do together.

How can receivables management help businesses?
M.W: Generally, businesses assign the handling of overdue receivables to their finance departments. These departments have one goal in mind: to recover as much money as possible at the lowest cost involved. The company is focused more on the money itself than on the customer; this leads to the customer’s negative perception of the company. Our view is that successful businesses, in any segment, focus on long-term relationships with customers. When a customer of a bank or a telecommunications company cannot repay, it means the customer is dissatisfied. And where there are many dissatisfied customers, there is going to be a lot of trouble in the future.

What are your strengths?
M.W: Being good debt collectors, we have got to know debtors: we have determined their repaying capacity, we have learned a lot about debtor behaviour. Now we are in a position to capitalise on this expertise to become a premier supplier of debt management services. Our experience enables us to help businesses better communicate with their customers.

What kinds of debtors are there?
M.W: First of all, the reasons for non-paying are varied. Some debtors simply run out of funds; there are cases where an invoice is sent to the wrong address. This means that the root of the problem is inside the company – its customer relations management procedures are faulty. Second, we know that debtors come in many different types. Those who simply will not pay account for only 10% of all debtors. Some debtors fail to pay because they gone on holiday, others simply forget the due date. It is imperative that businesses adapt their customer communication strategies to particular customer types; with this in place, receivables management is far more effective.

What’s it like in practice? Have businesses shown any interest in this approach?
M.W: To give a good example, let’s compare Wells Fargo and Citibank. Today, the market capitalisation of San Francisco-based Wells Fargo is as high as that of Citibank. But only three years ago, Citibank was probably four times larger than Wells Fargo. The question is: which way is the best one? Is it more advisable to resort to extreme measures or to slowly build company’s success and goodwill? Some of those aggressive businesses will soon have to exit the market. We have chosen to do business with companies taking the long-term view.

What results do you expect?
M.W: If we limit ourselves to operating only in the debt collection sector, we will be able to reach only about 10% of businesses that engage specialised firms to recover debts. But this is just the tip of the iceberg. Through embarking on changes and extending our services offering, we believe we can achieve much better results. We get to locate and reach 90% of overdue receivables whose collection is not outsourced. The companies involved prefer to handle this themselves because they do not think that engaging a debt collector increases global added value. So there is a huge potential to tap.

Intrum Justitia has been active in efforts aimed at amending European law. What changes would you like to see introduced?
M.W: Our intention is to ensure that specific measures implemented in Nordic legal systems are enacted in other countries. Our regulations clearly prescribe the amount of interest than is allowed to be charged; there is provision for the so-called debtor fees, which are prohibited in Poland. In Finland and Sweden, court actions to recover debt are concluded within 3-4 weeks at most. This system has been shown to work effectively – late settlement of payments is not considered an economic problem in Nordic countries. The further south you move in Europe, the fewer regulations there are, and more payment problems, and debt recovery cases; interest charged also gets higher as you move southwards.

And what effect does good regulation have on the debt management services sector?
M.W: In countries which have effective legislation in place, a higher percentage of debt management services is subcontracted; thus our sector can continue growing.

Can you explain this correlation?
M.W: Where there are no appropriate regulations in place, some businesses charge as much as 15 or 20% interest. Overdue settlement of payments is therefore a sizable percentage of these companies’ business; they are not keen to see the debt management system improved. But the truth is that overdue payments and excessive debt levels are one of the key problems in growth free-market economies because they limit competition and slow down growth.

So now, at the end of this interview, let me wish every success!
M.W: It’s a long way ahead, but we know where we’re going.