To bad bank or not to bad bank?

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Justin Hampton
5 years ago
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1 Consulting Banking To bad bank or not to bad bank? October 2009

2 Agenda What is the shape of recovery for Russia? To bad bank or not to bad bank? Common problems in dealing with bad debt Learning from the world experience

3 What is the shape of recovery for Russia?? V W L U = What is clear so far. 1. The cheap money and the credit hungry consumer with fast growing income and rapidly appreciating assets have disappeared 2. The general consensus is that the rapid growth is unlikely to come back and when crisis are over the growth will be moderate 3. A large percentage of the credit portfolio accumulated in the good years became or is in the process of becoming bad with unlikely short term recovery 4. Banks will need to clear their balance sheets and learn to operate in the new economic environment Slide 3

4 To bad bank or not to bad bank? Client just need a little extra money to survive through the crisis and than all going to be fine Lets just wait and see it looks like they have a solid business plan and good contracts We have the right credit people which are close to the clients and worked with the client for a long time, they are dealing with the problem Tried everything we should take them to court now We are going to take all the assets they have We will pursue the shareholders personal assets There is no value left. We can never sell these assets We thought we taken on assets but also took on liabilities How do we manage all these none core assets We should of taken action earlier The people dealing with the bad credit are not doing such a good job We should have a standardized approach and structures to deal with the bad debt We should not manage all the none core assets ourselves We do not have resources to chase all the creditors We are not a collectors agency We should let the bank focus on good business and specialists on bad debt Performance Slide 4

Common problems in dealing with bad debt Staff granting the credit are also in charge of recovering the bad debt Strong relationship with the client often causes lack of objectivity when dealing with

5 Common problems in dealing with bad debt Staff granting the credit are also in charge of recovering the bad debt Strong relationship with the client often causes lack of objectivity when dealing with the bad debt Credit officer is also a restructuring specialist Late awareness of bad debt by restructuring specialists Debt restructuring teams report to the same people that granted the debt Focus only on bad loans and not on potentially bad debt Slide 5

6 Learning from the world experience Bad bank or bad debt management department should be clearly separated from the good bank Clear segregation of duties and reporting structures are key to successes Formalized and structured process must be in place for identification, working out and management of the bad debt Early detection is a must, the longer you wait the less options you have Banker and a collector are two different professions Slide 6

Questions? Alan Vaksman Partner, Financial services advisory +7 (495) 223-5002 alan.vaksman@ru.pwc.

7 Questions? Alan Vaksman Partner, Financial services advisory +7 (495) This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this presentation without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this presentation, and, to the extent permitted by law,, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity.

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