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Comment by CEO of Finko Group, Janis Pizics for investors on Mintos:
As mentioned in the previous post, Armenia has been significantly affected by the Covid-19 pandemic and it has left a significant effect on the economy, as well as people’s ability to repay their debts.
The situation with the Covid-19 pandemic in Armenia is still critical, the number of infected people continues to grow substantially (more than 500 new cases per day). Testing is performed only for people with symptoms; therefore, the actual number of infected people could be even higher. Hospitals are overloaded and people are hospitalized only in case of severe symptoms. The current state of emergency is in force only until 14 June when most restrictions could be lifted. However, it is very likely that the state of emergency will be prolonged by one more month. Despite that, people are slowly returning to their workplaces; even though they are still required to wear masks in public places.
Debt collection and recoveries
As publicly communicated, Varks had an agreement with the Central Bank of Armenia (CBA) to stop any penalty calculations and not to report any client to the credit bureau until 1 June. As a result of these ‘credit holidays’ (no consequences at all for not paying your debt and no interest or fees calculated) as well as due to the Covid-19 situation in the country, the debt collection process was very difficult and the daily incoming payment amounts were extremely low (more than ten times lower compared to the situation before the crisis).
However, as a result of slightly reduced restrictions in the middle of May (movement allowed), as well as significantly intensifying debt collection activities (impending threat of penalties and bad credit history), the last week of May showed significant improvement in the recovered amounts. These are encouraging news in general.
However, given the continuous worsening Covid-19 situation, at the beginning of June the CBA insisted that Varks prolongs ‘credit holidays’ for one more month and offers free restructuring opportunities to its clients during June. As a result, currently, Varks is offering its clients restructuring where the first payment must be at least 15% and the restructuring term is 3-6 months. Clients will not be reported to the credit bureau and will not have penalties accumulating (the same as in April and May). As expected, due to these changes, incoming repayments in June have dropped back to April level.
Varks and Finko group can assure you that we are doing the maximum possible to work on the most optimal debt collection plan. We have significant experience with debt collection; however, we can use most of our tools only when countries remove restrictions on penalty freeze and report overdue clients to the credit bureau. We are currently in communication with the CBA to set up our collection strategy after 1 July that would allow us to use the efficient collection tools mentioned above (penalties and credit bureau). We believe that we will be able to agree on the most optimal scenario that would both help clients to restructure loans and repay their debts and allow Varks to fully settle its commitment to Mintos. At no point are we considering writing off those debts – our only objective is to continue the debt collection process until all Mintos debt is settled.
The payment behavior in Armenia historically has been very good and we expect that it will return to normal once the economic situation has stabilised. Therefore, we expect to collect back the full portfolio.
As of this week Varks and Mintos have agreed on the repayment timeline to recover Mintos liabilities. During May 2020 Varks transferred more than 600k EUR to Mintos and by June 17 2020 Varks will transfer additional 2.4M EUR to Mintos. As previously, all incoming cash is allocated only to Mintos and transferred at the earliest possibility. This will continue so also going forward.
I’d like to apologize for the frustration the recent events with Varks have caused, and thank investors on Mintos for your patience, as we work it out.