A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece
Abstract
:1. Introduction
- (1)
- By in-house collection;
- (2)
- By being assigned to a legal agency for collection; or
- (3)
- By selling to a servicer.
2. Process Description
- Phone communication and discussion with the debtor;
- Extrajudicial notification of the debt and debtor obligations;
- Court order of payment;
- Foreclosure in the case of existing real estate properties.
3. Process Model
3.1. Targets
- The recovery cash flow;
- The measure cost cash flow;
- The profit cash flow;
- The NPL portfolio Net Present Value.
3.2. Factors
- The discount rate, which expresses the time value of money;
- The measure cost, which refers to various measure application costs;
- The success fee for the collection agency.
- The measure efficiency;
- The mode debtor response time;
- The median debtor response time.
- The debt fraction for which the measure is applied;
- The time interval for which the measure is kept active.
3.3. Parameter Estimation
3.4. Process Optimization
- The extent of measure application (the debt fraction for which the measure is applied);
- The measurement duration (the time interval for which the measure is kept active).
3.5. Model Equations
3.6. The Case of Greece
4. Results and Discussion
4.1. Base Case
- The NPL portfolio consisted of personal loans and credit cards;
- The size of the loans had a medium average of about EUR 7500/case;
- Collaterals existed for 25% of the loans;
- Cost data were according to recently updated Greek legislation;
- Debtors’ behavior was according to the period of economic expansion in Greece;
- The collection period of 5 years was divided equally into 15 months per measure;
- The time value of money was 10% discount rate.
4.2. Optimization
4.3. Sensitivity Analysis
- Debt Characteristics
- Debtors Behavior
- Cost Data
- Collection Strategy
5. Conclusions
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
References
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Phone | Extrajudicial | Order | Foreclosure | |
---|---|---|---|---|
Expansion | ||||
Recovery (%) | 8.40 | 23.6 | 28.0 | 100 |
Mode (mo) | 1.48 | 3.20 | 1.34 | 2.54 |
Median (mo) | 4.44 | 22.8 | 19.1 | 25.2 |
Recession | ||||
Recovery (%) | 4.90 | 11.4 | 17.9 | 18.6 |
Mode (mo) | 0.12 | 1.90 | 0.13 | 2.44 |
Median (mo) | 1.80 | 11.6 | 43.5 | 12.5 |
1. Law Office | ||||||
1.1 Success Fees | 15 | % of Recovery | ||||
2. Extrajudicial | ||||||
2.1 Real Estate Check | 45 | € per Case | ||||
2.2 Notification | 30 | € per Case | ||||
3. Court Order | ||||||
3.1 Court Fees | 1 | % of the Loan | ||||
3.2 Lawyer Compensation | 64 | € for Loan less than | 12,000 | € | ||
139 | € for Loan between | 12,000 | and | 20,000 | € | |
268 | € for Loan greater than | 20,000 | € | |||
3.3 Notification | 20 | % of the Loan | ||||
4. Foreclosure | ||||||
4.1 Registration of Encumbrance | 1.72 | % of the Loan | ||||
4.2 Court Fees | 150 | € per Case | ||||
4.3 Βailiff Compensation | 53 | € for the loan portion less than | 590 | € | ||
2.50 | % for the loan portion between | 590 | and | 6500 | € | |
1.00 | % for the loan portion between | 6500 | and | 42,200 | € | |
0 | % for the loan portion greater than | 42,200 | € |
Total Collection | Phone | Extra- Juditial | Court Order | Fore- Closure | Units | |
---|---|---|---|---|---|---|
Model Input Data | ||||||
Case Study | Base Case | |||||
Average Loan Size | 7500 | €/Case | ||||
Financial and Institutional Environment | ||||||
Measure Constant Cost | 0 | 75 | 75 | 150 | €/Case | |
Measure Variable Cost | 0.00 | 0.00 | 0.01 | 0.10 | % Loan | |
Collection Agent Success Fee | 0.10 | % Recovery | ||||
Discount Rate | 0.10 | % | ||||
Debtors Behavior Characteristics | ||||||
Efficiency | 0.10 | 0.20 | 0.30 | 0.90 | % | |
Mode Time | 1 | 1 | 1 | 1 | Months | |
Median Time | 6 | 18 | 24 | 15 | Months | |
Collection Strategy | ||||||
Measure Extent | 1.00 | 1.00 | 1.00 | 0.25 | % | |
Measure Duration | 0.25 | 0.25 | 0.25 | 0.25 | % Total | |
Total Collection Processing Time | 60 | Months | ||||
Model Results | ||||||
Recovery | 0.343 | 0.075 | 0.085 | 0.100 | 0.083 | % |
Cost | 0.083 | 0.008 | 0.018 | 0.027 | 0.031 | % |
Profit | 0.260 | 0.068 | 0.067 | 0.073 | 0.053 | % |
Net Present Value | 0.209 | % |
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Marouli, A.Z.; Giannini, E.N.; Caloghirou, Y.D. A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece. Risks 2023, 11, 96. https://doi.org/10.3390/risks11050096
Marouli AZ, Giannini EN, Caloghirou YD. A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece. Risks. 2023; 11(5):96. https://doi.org/10.3390/risks11050096
Chicago/Turabian StyleMarouli, Alexandra Z., Eugenia N. Giannini, and Yannis D. Caloghirou. 2023. "A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece" Risks 11, no. 5: 96. https://doi.org/10.3390/risks11050096
APA StyleMarouli, A. Z., Giannini, E. N., & Caloghirou, Y. D. (2023). A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece. Risks, 11(5), 96. https://doi.org/10.3390/risks11050096