Tech Can Help Banks Manage Wave of Non-Performing Loans Expected in 20239 June 2022
More than 400 attendees gathered for a two-day, in-person event held by SmithNovak in London to discuss market outlook, trends, innovations and other hot topics surrounding the non-performing loan (NPL) industry in Europe.
Markets and investors in Europe are anticipating a new surge of NPLs given a confluence of headwinds, including financial losses from the pandemic; the end of COVID-19 support by governments; a looming global recession; supply chain issues; the crisis in Ukraine; and uncertain geopolitics. With economies around the world in a tenuous state, experts at the conference expect a wave of distressed debt — portfolios of small and medium enterprise — to occur in 2023 or 2024.
There was much discussion about artificial intelligence (AI), big data, predictive analytics and all the other technologies available to this space. I had the pleasure of moderating the session on technology and innovation. It was a dynamic and enlightening dialogue with tech executives from the industry. I came away with three takeaways from this discussion I’d like to share with the SS&C Intralinks community:
1. The NPL industry is highly innovative
The abundance of NPLs over the years has been a boon to many investors seeking higher-yielding opportunities. The NPL market allows them to purchase portfolios of defaulting loans and assets at heavy discounts and then turn around and sell them for hefty returns.
However, both sellers (typically banks) and buyers (a broad range of institutional investors) must deal with the notoriously laborious, complex, document-intensive and competitive NPL deal process. As such, a plethora of technologies have emerged to address different and/or multiple aspects of the process: NPL valuation tools, online marketplaces, AI-assisted document review and analysis, and more. This was also apparent at the panel I moderated, which included representatives from five tech vendors providing digital trading, data analytics for forecasting and performance evaluation, automated collection and recovery, and debt management.
2. The industry has many tech laggards
Given the range of technologies available to the NPL market, sales and transactions should be straightforward, right? Not so. The weight on the panelists’ (and their companies’) shoulders was low adoption rates across the board among sellers, buyers, servicers, advisors and other stakeholders. Many of the panelists said that it is rare for NPL deal participants to be tech-forward. In their view, there’s complacency when conducting a transaction in traditional ways because of the tedious effort involved in fact-finding, due diligence, valuation of assets and pushing the transaction to completion.
3. Digital transformation is vital to staying competitive
To encourage more technology adoption, it’s worthwhile to revisit core processes inherent in NPL deals — for example, protecting sensitive information, such as personally identifiable information (PII). A massive amount of PII proliferates documents in the due diligence process. Transmitting this documentation over email or unsecured file-sharing systems can put the transaction at risk, leaving the deal vulnerable to data breaches, fraud and insider trading. NPL sellers and deal teams must make sure they employ file-sharing technology that offers multi-layered security via multi-factor authentication, sophisticated encryption, information rights management, watermarking, redaction and other features.
As the European NPL industry gets ready for the predicted wave of deals and opportunities, sellers and buyers alike must adopt technologies that can help them stay competitive and get deals done efficiently.
Secure and thorough due diligence, document accuracy and availability will be critical. NPL sellers, buyers, servicers, advisors and other stakeholders must seek the services of reputable, dependable and secure technology providers.
Russell has over 15 years of leadership experience with a successful track record of scaling SaaS businesses within the AI, legal tech, fintech, trading and enterprise data sectors. Previously, he developed strong foundational business drivers during a 17-year career at Thomson Reuters, working in product management, marketing, business ownership and sales leadership. He recently rejoined Intralinks having previously managed the EMEA region between 2007 to 2009.
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