In the third quarter of 2023, 48.5 billion rubles of debt were put on the market. At the same time, there are about 9 billion rubles in the secondary debt segment, Kommersant reports. According to experts, significant sales of secondary debt indicate a recovery in the market and an increase in its activity. Agencies, having overestimated their portfolios, decide to sell segments that do not meet their profitability criteria. This process not only increases the efficiency of agencies, but also promotes a healthy distribution of risks and opportunities between different market participants. This dynamic indicates the development of the secondary debt market, where each player finds his niche by optimizing his approach and strategy for dealing with debt.

The market situation

The last time the secondary was actively traded was more than a year ago, in the second quarter of 2022.  At that time, 13.2 billion rubles were put up for sale. secondary debt, which was explained by the withdrawal of several large companies from the market. The average age of last year’s cases was 5.5 years, and they were sold for 1.81% of the principal amount. This year, the debt age has reached 6.5 years, while the price has also increased to 2.2%. «In 2023, we are seeing a 2.5-fold increase in the number of sellers of secondary portfolios. The volume of completed transactions increased by 14%,» describes the current situation Denis Belkin, Head of the ETP Debt Market.
In May of this year, the Bank of Russia reduced macroprudential limits on unsecured loans and borrowings, prompting lenders to clean up their own balance sheets. «The growth of the segment is caused by increased prices and a high percentage of deal closures after the restoration of the cession market in 2023,» said Evgeny Starodubtsev, Deputy General Director of FASP JSC. – External economic factors and changes in planning horizons have also influenced. Some sellers decided that in the current situation it would be optimal to sell those portfolios that they still planned to work with on their own. It is worth noting that the change of plans did not happen yesterday, a delayed effect was triggered, in particular, the approval of the sale by some market participants.»
In addition, the sales volume was affected by the overall price increase. Experts note several factors here. Firstly, the prices of secondary portfolios increased following the increase in the cost of primary portfolios. Secondly, the analysis of last year’s experience allowed sellers to improve the quality of secondary portfolios. Thirdly, last year, many digital microservices entered the market, simplifying and speeding up the collection process through electronic interaction with government agencies, robotization of processes, the use of speech technologies, machine learning models and artificial intelligence. This significantly reduced the cost of debt repayment.

Case quality

Of course, portfolios of secondary overdue debt are less likely to be recovered. The amount of the principal debt in such cases, as a rule, is 90-100 thousand rubles. Their payback period is about three years, but they allow you to save on primary processing. They have already been inventoried, court decisions have been received, and they are supplemented with a lot of secondary data on the debtor and the debt structure.

According to calculations According to the National Association of Professional Collection Agencies (NAPCA), the share of promises kept by debtors in the third quarter of this year was about 91%. For comparison, last year this figure was only 85%. Most experts assess the current trend as positive. However, this applies only to primary banking assignments, and the quality of microfinance institutions’ debts is traditionally much lower. According to the observations of the Bank of Russia, in the second quarter of 2023, MFIs significantly increased the volume of independent work with problem debts, therefore, it is likely that debts not processed by microfinance institutions were transferred to the secondary market in the third quarter.
Such portfolios are usually bought by third-tier agencies: regional collectors or newcomers who do not yet have sufficient funds to purchase promising assignments.  Nevertheless, major players are also paying attention to them, who have the opportunity to implement long-term schemes, work with pre-trial contacts and simultaneously conduct many cases in court.

The dynamics of offers

Last year, the cession market was quite volatile, which forced many players to reduce their activity. But by the third quarter, activity had recovered, and customers had accumulated enough funds for purchases. Of course, these processes have also affected the secondary market. «In the fourth quarter, we do not expect secondary delinquency sales due to the large volume of primary portfolios with a higher potential for recovery,» says Denis Belkin. «In 2024, the volume of secondary debt sold will also be lower, as such portfolios are sold on average once every two years.»
Evgeny Starodubtsev expresses a slightly different opinion.: «The volume of supply depends on the market as a whole, as well as on the external economic situation. A significant increase in offers is possible if a number of participants continue to exit the market.»
The fact that the third quarter of 2023 turned out to be a period of significant changes in the secondary overdue debt market, with record sales of 48.5 billion rubles, reflects the strategic reorientation of large collection agencies, which, through active assessment and reassessment of their portfolios, identify and sell less profitable segments, thereby increasing the efficiency of their operations.

This phenomenon was the result of the purposeful work of large collection agencies. Agencies are actively engaged in the assessment and reassessment of their debt portfolios. In the process, they identify segments that, according to their models and estimates, do not promise sufficient profitability. They tend to sell such segments, minimizing investments in inefficient assets.
The increase in sales volumes indicates a market recovery. Collection agencies are starting to work more actively with portfolios, showing interest in forecasting and intensifying their activities. Previously, debt retention without increasing sales volumes was due to market uncertainty, especially noticeable in 2022, when agencies sought to reduce risks by getting rid of burdensome assets.
Today’s trend is the deliberate allocation and sale of those segments of the portfolio that do not bring the expected profit to some agencies, but may be profitable for others. Smaller agencies that are able to handle such debts and are content with lower returns are actively involved in the purchase. Thus, large agencies are freed from less profitable segments, returning capital to invest in more promising portfolios.
This dynamics of the secondary debt market is a positive signal, indicating a healthy distribution of risks and opportunities among market participants. The presence of active buyers and sellers suggests that debt is distributed more evenly, contributing to the stability and efficiency of the market as a whole.
Changes in the cession market emphasize the need for flexibility and adaptation to changing conditions. Collection agencies should be ready to respond quickly to changes in the market situation. An increase in the age of debt and a change in pricing policy may require a review of the strategies of market participants. Foreclosure market players should take these factors into account when planning their operations and developing new approaches to foreclosure.
Improving the quality of secondary portfolios provides an opportunity for agencies to focus on more promising debts. This can lead to a higher payback and recovery efficiency.
The introduction of digital microservices and automated solutions opens up new opportunities to reduce costs and increase

the effectiveness of recovery. Collection agencies should pay attention to these tools and consider integrating them into their work processes.