A Alfa-Bank

FROM BANKING COLLECTIONS TO COLLECTIONS BUSINESS

By Yury Grachov Prague, June 2013

CRISIS IN UKRAINE 2008: THE BEGINNING

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ENVIRONMENT:

Loans: 90% in FOREIGN CURRENCY

Income: 90%+ in UAH (LOCAL CURRENCY)

200% home prices growth for last 2 years

90% Sub-Prime Mortgage with low DP

CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES

ENVIRONMENT:

Major Liquidity Crisis: Deposits Withdrawal Cease of Lending

Local Currency (Hrivna) is devaluated 60%

Home Prices is down 60%

Stock Market is down 83,5%

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• Growth of non-performed loans is due to the falling value of home prices together with devaluation of local currency and a general fall in the level of household income

CRISIS IN UKRAINE 2008: UKRAINE CONSEQUENCES

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Cease of lending in 2009-2010 lead to increase of 360+ to the volume of Current The biggest disproportion of Current and Write Off in Non Collateral Loans (short term loans, ↑ Default) Auto is the most stress resistant product due to high liquidity of collateral

LTV IS THE MAIN DRIVER?

• After crisis lenders have found that impossible to avoid credit losses even in the event of collateral sales.

• So, collection strategy based on LTV or Collateral Ratios has became the key to collection success.

Coverage Ratios - 2009

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Cars:– The most liquid collateral in retail – The least fall of value within crisis

Trucks:– Zero liquidity– The most significant fall of value within crisis

Apartments:– Liquidity is adequately to fall of value within crisis

Homes:– Low liquidity– Significant fall of value within crisis

Lands\Plots:– Zero liquidity– No consumer demand

Commercial Real Estate:– In terms of liquidity each object is unique – Fall of value is very similar to apartments

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COLLATERAL VALUE AFTER STRESS SCENARIO

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DEBT SETTLEMENT CONCEPT

We understand:- We are losing or the residual difference between outstanding and collateral value, or the part of this- Voluntary way is the shortest cut to get cash- Voluntary way is the cheapest way to get cash- Standard collections tools do not work

Borrower understands:- He is unable to pay the debt- Investment in collateral does not make sense - His property is at risk

Assumption: is it possible to reach agreement if the lender agrees to accept credit loses from difference and the borrower agrees to sell the collateral under control?

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DEBT SETTLEMENT

Collections = Collateral Value

Collections = Collateral Value + Extra

Debt Settlement

Collateral: Mortgage

Condition:a) Short Sale (not less than 50%)

Target Market 4 DS:1. Coverage Ratio < 80%2. DPD => 360 3. No additional property for legal enforcement

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Collateral: Auto or SME

Condition:a) Short Sale + 20% of the “Tail”

Soft (RS):> Identify possible DS> Remote DS proposal

Field:> Final Negotiation > Collections of documents for deal

Collection Back-Office:>Deal Closure

CRM

• Maintaining of common history of relations with debtor • Effective internal communications between departments• MIS and reporting

Sales

• Own competence of collateral evaluation• Own competence of collateral sales

Head Office

• One center of decision-making. • Strong KPI’s and Incentive Systems

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DEBT SETTLEMENT: HOW DOES IT WORK?

KEY ELEMENTS FOR SUCCESS

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1st DS Programs in Ukraine (Dec 2010): Quick decision-making Tough process timing

Motivation Scheme – 100% of staff incl. support

Full Infrastructure 4 Collateral Collection: Regional network (10 collection clusters) Strong In-House Legal Team RS, FV and Legal work in-parallel In-house Auto and Realty Sales

COLLECTION BUSINESS

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$500 million NPL portfolio under management: 90% - Mortgage 5% - Auto 5% - SME

$400 million NPL portfolio in process of purchasing

Average Purchase = 8-12%

Annual Average Return = 7-9%

Assumption Cost = 20%

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THANK YOU FOR YOUR ATTENTION!