DDM is active in the distressed assets industry, with a focus on both non-performing loans (NPL) and performing loans. The business consists primarily of the acquisition of loan portfolios from financial institutions and collection of the debt outstanding.
Whilst the European NPL market is maturing and in the process of consolidation, as banks have gradually decreased their NPL ratios towards pre-crisis levels, market activity for non-performing loans in Southern, Central and Eastern Europe (“SCEE”) has intensified.
The SCEE region has benefited from continued economic growth in recent years, supported by positive price development of real estate markets and a low interest rate environment. This has resulted in increased lending activity notably in the Balkans and Greece. We expect further investment opportunities across our core markets, as financial institutions across the SCEE regions are compelled by financial regulators to deleverage non-core NPL assets to further reduce their NPL ratios.
In general, the companies active in this market can be divided into two strategic groups by the business models prevalent, namely: debt collection through in-house or external collection agencies. DDM’s strategy is to access a platform of portfolio management servicing for secured corporate receivables that it launched during 2019 and to partner up with a multitude of outsourced collection agencies in each local market, in order to optimize collections from each portfolio. As a result of DDM partially outsourcing the collection process, the Company can select the best-suited collection agency for a specific group of receivables, and access a platform for the collection for certain larger corporate secured receivables to ensure increased control and to enable DDM to be closer to the market.
Key drivers and trends
The distressed asset industry is influenced by the general state of the economy in Europe, and regulatory changes of bank capital requirements. In particular the main trends observed are:
- Asset quality reviews and equity need for NPL’s
- Markets in Financial Instruments Directive (MiFID) framework
- Introduction of Basel III accord and future Basel IV standards developments