Banks Show Sliding Confidence on Collection Prospects, But Expect Rebound: Survey

Banks are now less confident in their ability to collect on past due accounts than they were just three months ago, according to the results of Kaulkin Ginsberg’s Quarterly Credit and Debt Collection Industry Confidence Survey for the third quarter. But banks are confident that the situation will improve by the fourth quarter of 2009.

While 26.9 percent of banks that participated in the survey reported “Strong” or “Excellent” current recovery performance – compared to 27.2 percent in the second quarter – only 13.9 percent believe recovery performance will be the same in six months. Furthermore, 46.5 percent of creditor respondents said that recoveries will be “Weak” or “Poor” in six months, up significantly from the 34.3 percent that answered the same way in last quarter’s survey

The most recent survey, conducted at the end of the third quarter, was taken by more than 750 ARM professionals, including bank and credit issuers; collection agencies and debt buyers; and vendors to the accounts receivable management industry. It follows the same survey that was conducted at the end of the second quarter (“Creditor Survey Underscores Anxiety about Current Economic Conditions,” June 23). The most recent survey afford the opportunity to compare results quarter-over-quarter for the first time.

As gloomy as banks are now and looking forward six months, sentiment improves when looking 12 months into the future. When asked about collection prospects in 12 months time, just 30.2 percent expect “Poor” or “Weak” results. More than 20 percent predict “Strong” or “Excellent” recovery results in 12 months. Download the full survey results report for free for more on creditor expectations.

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The ongoing credit crunch and the resulting Wall Street fallout will have an impact on credit granting businesses, according to the survey.

Survey respondents were also given the opportunity to express their thoughts in a less structured way at the end of the questionnaire with an open-ended free response. One participant took the opportunity to explain the credit crunch on banks: “Unless credit thaws significantly, we will continue to see a very large number of ‘overnight’ business failures as maturities come due and are not renewed. This issue will have a significant impact as these risks are not foreseeable in corporate customers via traditional risk management indicators.”

While creditors felt that their own recovery performance would get better over time, they did not have the same opinion when it came to their collection agency vendors.

Of all the questions on the survey, the ones predicting collection performance six months and 12 months down the road showed the largest variation between bank and creditor respondents and collection agency respondents. Banks had a much gloomier outlook on future performance compared to collection agencies. Download the full survey results to see how much they differed.

More than 75 percent of creditors taking the survey said that they outsourced at least some part of their collections to third party agencies.

Editor’s Note: Kaulkin Ginsberg is the parent company of insideARM.com.