EOS and bpost bank: 24 years of mutual respect
For 24 years, debt collection service provider EOS Aremas and the Belgian bpost bank have been working together in the fiduciary collection segment. They are now strengthening their relationship with a forward flow deal and the purchase of a EUR 36 million loan package. A case study on a fruitful collaboration.
- EOS Aremas and the Belgian bpost bank have concluded an agreement on the sale of unsecured receivables to the value of EUR 36 million.
- The two longstanding business partners have also signed a three-year forward flow deal.
- Is a deal on secured receivables also an option in the future?
The relationship between the two partners is marked by familiarity and a spirit of trust. The retail bank has been in the business for 25 years, and for 24 of those years it has been working with EOS Aremas in its capacity as a debt collection service provider. Just recently, Ivan Demuynck and Roel Dumont closed their biggest deal ever: Since 1 November 2019, EOS Aremas has been continuously buying bpost bank’s non-performing unsecured loans and overdrawn checking accounts that have not been serviced for at least 150 days. This kind of transaction is known as forward flow; in this case the parties have agreed on an initial contract term of three years. EOS Aremas is also acquiring 47,000 collection cases with a nominal value of EUR 36 million from the bank, a subsidiary of the Belgian postal service, and BNP Paribas.
“This is the largest number of cases that we have ever purchased in one go,” says Dumont, Managing Director of EOS Aremas in Belgium . Since 1996, EOS Aremas has been recovering overdue debts on behalf of the bank, mostly on a commission basis. “We have handled more than 90,000 cases for bpost bank, so we were very familiar with their loan portfolio.” At some point the complete acquisition of debts owed to the bank became the next logical step: “The bank no longer needs to deal with the administration of the NPLs and also doesn’t have to list them in its balance sheet.”
More equity for bpost bank thanks to sale of receivables.
“This reduces our costs and protects our equity,” adds Demuynck, the Credit Director of Belgium’s bpost bank. Since 2015, bpost bank has increased the volume of consumer loans and mortgages granted from around EUR 200 million to EUR 6 billion. In the current low-interest climate, it is more profitable to issue the capital from savings as loans than to invest it in government bonds. “We could soon have a credit volume of EUR 10 billion, which is why the issue of equity is becoming increasingly important.” Since the financial crisis, Europe’s banks have to classify loans to defaulting payers as non-performing at an earlier stage, and provide more equity. The alternative is to sell them.
NPL deal the logical next step.
In 2017 bpost bank’s new lending business was increasingly buoyant, so Dumont proposed a larger forward flow deal to Demuynck for the first time. “However, Ivan and his colleagues were still in the process of honing the loan products, so it was still too early for new approaches to back-end business processes.”
The second attempt then came a year later: “We had all the data about the loan portfolio and so were able to formulate an initial purchase proposal for the cases concerned,” says Dumont. “Alongside our expected returns we were able to produce a good estimate of possible success rates and costs and thus submit a non-binding offer.” bpost bank was ready to talk but wanted an accredited expert to review the offer. In addition, the first step was to have a forward flow agreement on new NPLs; this would then be followed by an agreement on existing cases.
We have handled more than 90,000 cases for bpost bank, so we were very familiar with their loan portfolio.
Respectful interaction instead of reputational damage.
For bpost bank it was not the price alone that was important, but also the way its customers would be treated. “We are one of the 10 biggest banks in Belgium and firmly established in the mass market thanks to the postal service sales network. We could not afford damage to our reputation under any circumstances. But of course we knew that EOS Aremas operates in a highly professional way.”
To ensure that this is the case, Dumont and his team follow two principles: “On the one hand we have a highly efficient debt recovery process. Thanks to automation, evaluation and segmentation we know which cases are more likely to be successful,” he says. “At the same time we are conscious of our responsibility towards society. We want to find good solutions for defaulting payers, because everyone deserves a second chance.” Treating defaulting payers with respect is crucial. To make sure of this, EOS Aremas records phone calls and gives its staff ongoing training.
Purchase of secured receivables a future option.
Twice a year, Dumont walks over to Demuynck’s office to talk about how the business stands. Today, Demuynck and Dumont are drinking a toast to good business, past, present, and possibly also future. For example, what if EOS were to buy not just unsecured loans from bpost bank but also real estate packages? “Maybe we’ll talk about that sometime,” says Demuynck.
The two men laugh, but they are well aware that the purchase of secured loans would be a significant step. “The business is quite different, because with every loan that you sell you are also selling a security, a piece of real estate,” says Dumont. The acquisition of these kinds of portfolios demands a much more complex analysis than transactions with unsecured loans. “EOS is already buying secured loans in other countries and we see that it involves quite a different way of working. You are responsible for a real estate portfolio, and that is already a major step in the progression from debt collection company to financial investor.”
We are one of the 10 biggest banks in Belgium and firmly established in the mass market thanks to the postal service sales network. We could not afford damage to our reputation under any circumstances. But of course we knew that EOS Aremas operates in a highly professional way.
While the unsecured loans from bpost bank are normally in the range of EUR 2,500 to 50,000, the secured loans are much bigger, on average from EUR 150,000 to 200,000. Most of the loan portfolio of bpost bank consists of mortgages for retail customers. “But it is still too early to discuss the sale of secured packages or possible forward-flow agreements,” says Demuynck. The bank still wants to gather some experience of its own in this area: What kind of cases cause problems? What is the process for the foreclosure of property? “But at some point we will probably have this conversation as well.”
Photo Credits: Henning Ross