Best Practices in Asset Repossession

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Lesley Scott
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1 Best Practices in Asset Repossession Lessons learned from the recent cycle Bas Hoekstra Managing Director, ING Lease Romania CESEE Seminar,, April

2 Contents Food for thought Economic sectors and the cycle Lessor type Distribution of lease products Assets Asset inspection Procedures Arrears & bad debt management Friendly and unfriendly repossession Remarketing Morale of the story 1

3 The Economy has Fallen Off a Cliff (*) (*) Mark Cliffe, Chief Economist ING 2

4 Food for thought The best repossession is no repossession Paving the way to a successful repossession starts early in the sales cycle When in doubt don t do it! Apply common sense, one deal more or less will not make or break your company Play the cycle, or burn your fingers Exposure on certain market segments 3

5 Economic sectors affected through the cycle Transport sector Building materials Food Grafimedia Metal industry Machinery Rubber and Packaging Chemistry Source: ING Economic Bureau 4

6 Lessor type Best practises from which perspective? Finance lessor Operational lessor Captive lessor -Vested interest in residual value or not? -Remarketing capabilities or not? -Second hand market protection or not? 5

7 Distribution of lease products Distribution channels strongly influence repossession succes direct sales indirect sales -* Bank channel -* Broker channel -* Manufacturer channel -* Disclosed -* Undisclosed 6

8 Assets Type of assets also strongly influences repossession succes small ticket assets road registered non road registered And size does matter! think of repossession and removal when you sign contract practical and financial hurdles Dont forget landlords notify them how will they act when your lessee is insolvent? 7

9 Assets (continued) Real estate assets, a special category yes you can repossess immovables be careful when granting sub leases specifics of lessee are important does the gas and electric supplier know who you are? And beware of valuators, consider developing in house valuation capabilities 8

10 Asset inspection Identify the asset before you disburse (unless you dont ever want to see the stuff you finance) check serial numbers check road registration characteristics if not road registered verify peculiarities tag assets if appropriate (indelible ink, stickers that don t remove) Consider not giving second key to your lessee And to install GPS system in luxury cars Or not to provide standard insurance coverage outside your country 9

11 Procedures They may seem to be a pain but applying them will pay of in a repossession scenario make sure your contracts are in order make sure that your sales/representatives witness the contract signing perform regular asset inspections monitor insurance payments keep a close eye on your LGD curves dont loose sight of basic risk parameters dont ignore macro economic dynamics 10

12 Arrears and bad debt management Follow procedures when customer does not pay on time make it clear who is in charge daily follow up by dedicated team strategy should be clear and mathematical terminate before client goes insolvent and start legal actions client is more willing to negotiate if under pressure restructure if there is a chance of recovery Repossess and sell if you dont reach agreement soon time is of the essence! * assets loose value * clients strip company 11

13 Arrears and bad debt management (continued) cooperation between collection department, legal department and recovery department/team must be scrutinized money makes the world go round, but not always to your benefit forced execution / court executor / police vs self recovery 12

14 Friendly or unfriendly repossession When times are tough the tough get going dont expect miracles when (a lot) of money is involved our legal systems are cracking under burdens from past lobby legislation through your local leasing association create alliances with police make yourself heard! You finance an important % of your country s GDP Go to court, again and again, to educate the market And if all that does not work, run for president.. 13

15 Some examples AFTER BEFORE 14

16 Some examples 15

17 Some examples 16

18 Some examples 17

19 Some examples 18

20 Some examples 19

21 Some examples 20

22 Remarketing Transparency is key Sale to end users or traders Manage your way out of the mess or cut your losses Sell outside your country? Trusted partnership with selected traders Use of auctioneers Disassemble before sale or not 21

23 THE key succes factor Employ guys my age!!! Analyse historic data!!! Think anticyclical!!! 22

Lecture # 6 Elasticity/Taxes

I. Elasticity (continued) Lecture # 6 Elasticity/Taxes Cross-price elasticity of demand -- the percentage change in quantity demanded of good x due to a 1% change in price of good y. o exy< 0 implies compliments