November 23 (SeeNews) - The establishment of a stable framework for out-of-court restructuring and better conditions for the resolution of non-performing loans (NPLs) is essential if Croatian banks are to reduce their NPL levels in order to support normalised credit conditions for the economy, according to the European Bank for Reconstruction and Development (EBRD).
The bank hosted a workshop on out-of-court restructuring under the Vienna Initiative in Zagreb on Wednesday to identify ways of strengthening the cooperation of banks with regard to NPLs, it said in a statement.
During the workshop the EBRD encouraged Croatian banks to adopt a more cooperative and coordinated approach to multi-creditor cases, including requirement for the debtor to share information at an early stage with all of its financial creditors on an equal basis as well as agreement among creditors to suspend any enforcement action thus allowing time for the debtor and its advisers to formulate a restructuring proposal.
The persistently high levels of NPLs and high corporate leverage in many countries in the region remains a serious concern, Vedrana Jelusic Kasic, EBRD Regional Director for the region, said in the statement.
"Dealing with NPLs is a burden for banks. It diverts resources from other activities and, together with high corporate leverage, reduces the number of creditworthy companies. This holds back potential for growth in numerous countries as many companies in default or with high leverage cannot operate efficiently. We believe that out-of-court solutions could play an important role here", she added.
While bilateral out-of-court restructuring is already in use in Croatia, multi-creditor cases remain fewer than in other European jurisdictions. The same is true for other countries of the region such as Hungary and Serbia, the EBRD noted.
Croatia's justice ministry has been working intensively to promote out-of-court settlements, especially for small and medium-sized enterprises (SMEs) and corporates, the ministry's state secretary, Maja Grubisin, said.
"We have recognised the potential of this approach and we are aware that continued efforts are necessary in order to create and implement adequate measures for the timely resolution of disputes, thus securing uninterrupted business activities and preserving time, energy and money. This approach would be beneficial to all companies and especially to MSMEs", she added.
However, Croatian bank representatives believe that to facilitate out of court restructuring Croatia needs to develop a culture of trust and confidence. "Legal reform is not itself sufficient", said Bojan Fras, Croatian National Bank vice governor said.
At the end of June, the share of non-performing loans in Croatia's banking system fell for the fourth quarter in a row, reaching a three-year low of 14.99%, down from 16.12% at end-March. The NPL ratio for the corporate sector declined to 25.92% from 28.26% at the end of the first quarter, while that for the household segment fell to 11.18% from 11.93%, data from the central bank indicated earlier this year.
Croatia's NPL ratio peaked at 17.34% in June last year and has since been declining.
The EBRD's workshop, which was attended by several financial institutions, was held under the European Bank Coordination “Vienna” Initiative, a framework for safeguarding the financial stability of emerging Europe.