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The Analysis News & Opinions

‘Perfect storm’ warning for IFRS9

The credit and collections industry has been warned to prepare for a ‘perfect storm’ ahead of the implementation of IFRS9. Speaking at a round-table debate organised by CCRMagazine and FICO, last month, Bruce Curry, EMEA collections & recovery business lead at FICO, said: “In my view it is a perfect storm, because you have IFRS9 from the accounting side, and you have the regulator and everything about CONC, forbearance and how we engage with customers.

“We, in the UK, are not quite in the state of Greece or Cyprus with their NPL ratios, but we do have some challenges and there will be stresses between how we meet the needs of the customer versus what that does to the balance sheet.

“My view is that IFRS9 will drive the biggest change to collections and recoveries in the past 30 years. That is because most of our operating models have been driven by cost, and cost allows lots of accounts to get to bucket two – our cost to collect – and why we still have pretty good recovery rates from bucket two.

“These will now become status two accounts under IFRS9 and there will be people on the good book saying ‘hold on, I have already got enough impairment on my good book that has not yet gone delinquent, do I want these customers back? If I restructure, do I want to keep them?’ The only way that they can release this provision is to either sell portions of the good book, exit customers from the delinquent book, or sell to release the provision through write-off,” he said.

“What concerns me is that most of the clients that I speak to do not have a collections-specific project team for IFRS9. They have enterprise-wide project teams, who are still grappling with the modelling, and, yet, hardly anybody is ready to hit the deadline.

“Most of the European banks do not even believe that they can accommodate it, and we, in the UK, believe we are in a better state than most of the banks around Europe!

March 2017

“Many of those involved believe the preparation to be unwieldy and messy, there appears to be no systemic way of doing the modelling required and everything is arguable, but it is coming and everybody is going to have to adopt it.”

Frank Horvath, managing director of Link Financial Outsourcing, added: “Speaking to our clients, it is impacting them and some of the more forward-thinking ones have already begun to think about how they are going to manage their assets. They are looking at segmenting and which segments are best managed in-house, which out-of- house, and which should be sold early. “Others have not got that far down the track yet – so there is quite a different landscape depending on who you are talking to and, as ever, it is those who have the data, processing and analytics power that are leading the way.”

Meanwhile, Lee Webb, head of early stage collections at Vanquis Bank, said: “We are certainly on the journey. At the moment, nothing is really changing for us, we are still always focused on doing the right things for the customer. Our view is that we should not be driven by IFRS9 to drive the customer outcome, it should simply be a question of what is right for the customer.” Opinion

Housing White Paper – is it self-defeating?

Last month, the government launched its Housing White Paper and, overall, it seems to adopt a sensible approach to righting the wrongs of the housing market.

However we must all acknowledge that these changes will not be implemented overnight and the road is likely to be long in terms of upping supply and ensuring we are building enough affordable homes in the areas where people want to live. The focus on ‘tenure neutrality’ is also a step forward, however, there does appear to be a confused approach to the private rental sector (PRS) – on the one hand supporting new-build for rental purposes, but then penalising private landlords with the extra stamp-duty charge, plus looking to extend HMO licensing requirements and to bring in electrical safety certificates. Not forgetting the ban on letting agent fees, the costs of which will be put on the landlord who will most likely pass them on to the tenant. The Housing White Paper, on the whole, does present some much-needed joined-up thinking. However in the case of the PRS this seems to be lacking. We have long advocated a u-turn on the additional stamp-duty charge for landlords because we feel it negatively impacts on the UK housing market and overall transaction numbers. It appears at present that the government only wants institutional investment in the PRS and is actively looking to discourage individual landlords – the lifeblood of the sector – from adding to portfolios, or even continuing in this sector.

When the need for rental property is great indeed, and the government acknowledges its importance, it seems utterly self-defeating to do this. We urge the government to change its mind on this and make the market far less difficult for individual landlords to deliver the much-required supply of properties.

Lloyd Davies

Operations director, the Conveyancing Association


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