Fitch Ratings has warned of continued delays in the recovery of non-performing loan (NPL) sales, which will limit revenue growth for debt collectors.
However, the rating agency added that the medium-term macroeconomic outlook for the sector remains strong, with rated issuers still showing profitability.
Fitch noted that economic instability generally creates opportunities for debt collectors as more NPLs will be available for purchase.
However, government support programs during the pandemic have slowed the rate at which new PNPs have been developed, limiting the ability of debt collectors to replenish their books. It also accelerated the collection of existing PNPs, further reducing the pool of loans available for purchase.
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“Revenue from acquired wallets is typically highest in the early years, so the combination of faster payouts and slower wallet replacement makes 2020 and 2021 strong collection benchmarks for future comparison” , said Fitch.
The rating agency added that many banks are already beginning to report second-stage loan increases, some of which are likely to become NPLs. However, he added that inflationary pressures on consumer incomes could drive down collection rates, reinforcing the importance of price discipline and profitability in a tight supply environment.
“Collectors operating in a range of markets, or with diversification into purchasing and service businesses, are better positioned to meet these challenges,” Fitch added.
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