You're reading: Ukraine’s debt collection market keeps growing

Debt collection is a booming business.

Since 2010, Ukraine’s debt collection market has grown three-fold from Hr 8 billion to Hr 24 billion. This year will bring more growth.

The Ukrainian debt collection market is estimated at Hr 22-24 billion, according to Andriy Nyzhnyk, a board chairman of the Association of Collection Businesses in Ukraine. This number does not include banks’ sales of bad loans, which are sold to the banks’ subsidiary collection agencies.

“Speaking of banks and bad loans, the potential debt collection market might be estimated not less than Hr 66 billion,” Nyzhnyk said. And the market is set to rise further, he added.

Oleksandr Zholud, senior economist at Kyiv-based International Center for Policy Studies, also believes the current year will bring good prospects for the development of debt collection business. “I think that the quantity of collection agencies will remain the same but the service they provide will grow,” he said.

“The recession will lead to Ukrainians’ income reduction, some will not be able to pay off their debts,” he added. Zholud suggests that in 2014 collectors will work mostly on short-term consumer loans, because in the past Ukrainian banks have been actively issuing loans of this sort. Collection agencies plan to work mostly on repayment of recently overdue debts and debts for housing and public utility services this year, Nyzhnyk says.

Collectors complain that low interest rates on debt collection, low profitability and loopholes in Ukrainian legislation are the main causes preventing development of their business. Nyzhnyk says that interest rate is only 5-15 percent of the total amount of an overdue debt.

“Profitability of collection agencies in Ukraine does not exceed 7-10 percent of the total gain,” Oleksandr Kabak, head of Verdict collection agency said. “Imperfect legislation and different interpretation of the same laws by different public bodies prevent the market from active development,” Nyzhnyk added.

In turn, debtors have a lot of complaints regarding collectors’ work. Lawyers say that their clients complain about collectors applying psychological pressure on them.

“Collectors like to phone a debtor late at night. They call a debtor’s workplace or send him letters with threats,” said Natalya Sumska, a lawyer at Sumski, Filshteyn and Partners law firm.

Sumska recommends people not to pay attention to collectors.

“If you suffer from their activities asking legal counseling is a good idea,” she said. “In most cases debt collection agencies refuse to meet with their victims’ lawyers.”

Rostyslav Kravets, senior partner at Kravets and Partners law firm, said that debt collection agencies often illegitimately post announcements marking “debtor” on people’s houses. “Besides, debt collection agencies that do not have currency licenses collect debts in foreign currency,” the lawyer added.

“They often violate not so much law as they infringe ethical behavior,” Serhiy Boyarchukov, managing partner at the Alekseev, Boyarchukov and Partners law firm, said.

“Collectors are typical entrepreneurs before they pass the line after they turn into phone hooligans and blackmailers,” Boyarchukov noted. “They often violate not so much law as they infringe ethical behavior.”

Kravets said that there are no special laws regulating collectors’ business in Ukraine. “Collectors’ business is an entrepreneurial activity aimed at reimbursement of bad loans. That’s why it is incorrect to say that their business is illegal,” Boyarchukov added.

The activity of debt collection agencies is regulated under the Civil and Economic Codes. Lawyers believe that no special laws concerning collectors’ activities needed to be adopted.

“The existing laws clearly regulate the debt collection process, and norms of the Ukrainian law ‘on protection of consumer rights’ protect ordinary citizens from illegal actions of creditors,” Kravets said.

“Another question is that the laws are not enforced, and the current juridical system allows swindlers to remain unpunished.”