Debt Collection Solution (TERA COLLECT)

Automation: Making Way for Credit Officers to Reduce NPLs

A non-performing loan (NPL) is bad news. A more serious one. Ask any credit and collection specialist, collecting agency and agent, attorneys, and everyone else in the lending business and they’ll all relay the same to you regarding aging receivables.

You’ve seen borrowers default. Reason being, they may run out of money or find themselves in situations that make it difficult to continue repaying the loan. The result is a blow to the bank’s financial performance—a high NPL.

What Exactly is Debt Recovery?

To recap, debt recovery is all about attempting to retrieve payments from debtors who have failed to pay their dues on time. It’s one of the most important, yet complex and time-consuming aspects of credit management. When the risk of nonpayment is unacceptable, debt recovery steps in—overseeing the full credit process. That begins when selecting and vetting borrowers to ascertain their competency to receive the funds. Credit must go to only credit-worthy customers who will repay the principal amount and interest on time.

Changing NPL Dynamics in the Banking Sector Credit Managers Should Be Aware of

The Central Bank of Kenya has reported that borrowers defaulted on Sh73.05 billion in bank loans in 2020, underscoring the severity of the economic situation caused by COVID-19. Additional findings also indicate the value of defaulted loans reached Sh423 billion, or 14.1% of the entire Sh3 trillion loan book, a significant increase from the Sh351.73 billion in default at the end of March 2020.

Further data demonstrates that, while some banks had an increase in NPLs during the time under study, a number of them experienced a considerable decrease in NPLs. This narrows down to specific commercial banks, microfinance banks, and Saccos. CBK has also indicated that 11% of banks had their NPLs rise, 70% remained unchanged, while 22% fell, according to a survey on non-performing loans trend per economic sector in 2021.

Kenyan Listed Banks’ Q1’2022 Results: Cytonn Analysis Report

Following the report on Kenyan listed banks’ Q1’2022 results, the Cytonn Financial Services Research Team conducted an analysis of the financial performance of the listed banks and highlighted the significant elements that drove the sector’s performance. Kenya now has 38 commercial banks, the same as in Q1’2022, but fewer than the 43 licensed banks in FY’2015.

However, the 2021 financial performance is distorted by the variable performance of 10 listed banks. Asset quality for listed banks improved during the period, with the weighted average NPL ratio falling by 1.0 percentage point to a market cap weighted average of 12.5 percent, down from 13.5 percent in Q1’2021. The increase in asset quality is due to a 17.2 percent increase in loans in Q1’2022, compared to an 11.6 percent increase in Q1’2021. Contrary to this report, the CBK release shows the total ratio of banks’ NPLs decreased to 14.1 percent in 2021 from 14.5 percent in December 2020. This is a measure of all banks’ credit risk and loan quality.

Further analysis by Cytonn indicates the lowest NPL ratio during the reporting period was 7.5% and the highest, 24.7%, with the lowest % Point change in NPL Ratio at 0.1% and highest at 4.2%.

Kenya Listed Banks Q1’2022 Report (Cytonn Financial Services Research Team analysis).

Meanwhile, two key microfinance banks had their gross NPLs hit above Sh 4 billion in 2021. For Saccos, the Sacco Societies and Regulatory Authority (SASRA) has revealed one of the leading Sacco’s total delinquency loans or gross loan portfolio hit 2.14% in 2021.

Despite all the positive appeals, there’s substantial evidence of the weakening strength of the borrowers’ ability to honor loan repayment. Banks’ profitability had fallen substantially as a result of the massive increases in provisioning by the end of September, with leading banks all issuing surplus warnings.

Rising NPLs: What’s the Impact?

A Decline in Banks’ Profitability:

High NPLs are taking a toll on many banks—decreased interest revenue, higher impairment costs, unrecoverable principal, poorer credit ratings, and higher funding expenses. If not effectively and proactively handled, this could result in a decline in the banks’ cash flows and lending capabilities. Moreover, the bank must have a provision for bad debt to improve its solvency and capital adequacy ratios.

Increased liquidity issues:

Signs of a financial crisis mean securing more financing becomes much more difficult. The result? Exacerbation of liquidity problems. Financing projects becomes more challenging.

The reason is simple: Vaguer practices.

Customers are sometimes unable or unwilling to make payments when they are due. Collection efforts may only recover some of the overdue amounts.

Essentially, vaguer collection activities can lead to repayment plans or debt restructuring that may not provide debtors with additional time to make payments or resolve their debts on more manageable terms. Talk of zero promises to pay despite the efforts, late reminders, notifications, or letters to clients regarding debts overdue. Printing letters instead of relying on auto-configured templates to auto populate letters. Unprofessional prediction of the best time to call, contacting wrong clients, among other

These are just a few of the vaguer practices that add to your huge workload. A properly organized credit department plays a critical role in managing accounts receivable portfolio risk to protect profits and prevent potential losses. This is to help you remain more productive in your career. But if you do this manually, all hell will break loose.

Tera Collect

NLS Tera Collect is designed to create, follow, collect, report and close pending debt collections through a consolidated Debt Collector. The module provides a comprehensive overview of the debt management process thereby saving valuable time and reducing operational risk by offering relevant information in one central system. From this centralized position, a user can easily manage a broad range of debt management activities.

The solution further provides a broad range of tools and features and easily integrates with existing systems due to its service oriented   foundation.The system offers a close management of customers through intelligent customer segmentation. This allows a bank to deliver dynamic, tailored collections for each delinquent customer, especially given the highly competitive environment and the ease of switching between  banks, leaving debts behind them.

With this solution, customers can be finely segmented to create an accurate profile and by using alerts and timely reports, banks are able to device and drive the most appropriate strategy. The system presents an integrated approach to sales, collections and credit management.

By synchronizing all customer data, a bank reduces error risk, lowers audit costs and helps manage customer relationships. With easy access to information, banks can make more reliable credit decisions and have full documentation of decisions through audit trails. with  better credit decision making and improved collection strategies, banks can significantly reduce bad debt write-offs.

Persuade me That Automation Works

“Before automation, we’d receive a certain number of accounts depending on what bucket to collect every month. There was between 1-30, 31-60, all in excel format. Right now, we’re saving a lot of time. You can imagine, sending letters used to take 3-4 days. But right now, it’s just instant. Let’s say today I have 300 accounts. Even before I start calling debtors, they’ve already received email notifications, SMS, and letters.

I love the fact that it’s quite professional and wonderfully efficient! — we truly appreciate. “

— Current Client

Today, NCBA Bank stands on the cusp of one of our latest innovations in the collections industry. The bank’s collections have undergone massive changes since 2016, chief among them, reduced NPL. This enthusiastic adoption of automation has disrupted the bank’s long-held monopoly on its traditional debt collection model.

In brief
  • 100% transition from the manual issuing of repossession.
  • Information on repossession is sent to auctioneers on day 14 at the end of the due date.
  • Users are able to automatically send demand letters by just performing a few clicks in the system.
  • 60% relief on collection tasks. Only 40% for the credit officer.
  • Automatic and instant notifications. No late notifications
  • 60% of dues are paid before the due date (between 0 and 30 days). The remaining task is only 40%.
  • No more calling auctioneers to inform them to stop following a customer who has cleared arrears.
  • Cure rate increased by 80%
  • Reduced Turnaround Time (TAT) by 90% in just one month.

So, will you Let Automation into your Debt Recovery Process?

It’s fair to say the results being delivered to all our clients are real, tangible, and significant, which you can’t afford to ignore any longer. In fact, automation is becoming more prominent with the evolving business models as technology becomes mainstream.

The System Consists Of Following Prime Modules And Features

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Data upload and assigning

Customer promise and 360 degree view

Enquiries and tools

Alerts and reports