Due diligence of a debt portfolio
Commercial due diligence of a debt portfolio is a form of pre-transaction analysis in acquisition processes of the asset deal type, where portfolios are acquired, and share deals, where shares/stock of entities from the financial sector are acquired.
Unlike the valuation of a debt portfolio, commercial due diligence focuses on a dynamic approach and is aimed at diagnosing risk areas related to the operational activity of the entity providing financing to consumers or enterprises.
The study analyses areas such as:
- trends in the quality of the debt portfolio,
- changes in appetite for risk,
- compliance of the construction of the offered products with the applicable laws and regulations,
- trends in debt sales and collection,
- key funding processes.
The analysis may also include the unique characteristics of clients located in the databases of entities involved in the transaction.
The purpose of the debt portfolio due diligence is to disclose risk factors that may not be evident at the transaction stage (e.g. probably increased future harmfulness) and to diagnose practices aimed at artificially improving the quality image of the portfolio. An independent expert opinion helps to make an optimal, conscious decision regarding the execution of a given transaction.