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Regional asset manager may help draw NPLs investors to SEE region – IMF

Regional asset manager may help draw NPLs investors to SEE region – IMF ruskpp/

SOFIA (Bulgaria), October 14 (SeeNews) - A regional Asset Management Company (AMC), which would buy non-performing assets from banks located in different countries in Southeast Europe (SEE) and sell them to foreign investors, could help reduce transaction costs and create sufficient volume to attract large institutional buyers, a spokesperson for the International Monetary Fund (IMF) said.

“However, in order to understand if this is a viable option, one needs to think how to handle diverse national legal systems and different types of problem loans as well as how to price these assets and how to fund the AMC. Also one has to bear in mind that Slovenia already has an AMC. So the idea is appealing, but its implementation may be difficult,” the spokesperson told SeeNews in an email.

In the wake of the global financial crisis, banks in SEE are struggling to cope with stubbornly high non-performing loan (NPL) levels which have constrained lending activity and economic growth.

A recent IMF discussion note on NPLs in Europe indicated the total gross NPL ratios in the SEE region last year were highest in Albania and Serbia at 22.8% and 21.5%, respectively, while Macedonia and Romania had the lowest levels of 11.3% and 13.9%. Also last year, Croatia’s gross NPL ratio was at 16.7% while that of Slovenia was 20.2%.

Among non-euro area countries, the IMF notes peak NPL ratios were the highest - above 20%, in Albania, Montenegro, Romania, and Serbia.


Serbia, alone in SEE, is mentioned in the IMF note among countries in Europe where NPL ratios continue to rise while other corporate debt metrics either remain flat or deteriorate, suggesting slow or no progress in corporate and bank balance sheet repair.

“There are serious structural impediments preventing prompt NPL resolution in Serbia. Market participants often point to difficulties in enforcing collateral and weaknesses in the corporate insolvency regime - insolvency proceedings in courts are often unpredictable and take very long time,” the IMF spokesperson said.

The IMF discussion note acknowledges the reforms that Serbia has made to upgrade its insolvency regime, including the introduction of fast-track prepack insolvency procedures while enhancing its out-of-court framework.

Although the market for NPLs in Serbia has been very limited due to pricing gaps between potential buyers and sellers, the IMF spokesperson noted that transactions are beginning to take place.

In September, Erste Bank Novi Sad sold a portfolio of bad loans totalling 23.5 million euro ($26.8 million) to Czech-based APS Holding, saying at the time that it plans to sell another NPLs package by the end of the year.

The IMF expects the level of NPLs in Serbia to fall over the medium term, as a ‘bad loan’ resolution strategy - containing action plans of the government and the National Bank of Serbia drawn up by the authorities in the framework of their program with the IMF, starts to take effect, also supported by a gradual economic recovery.

The effectiveness of the strategy – which contains a comprehensive set of measures, addressing specific impediments, will depend critically on timely implementation of the envisaged measures. “Durable resolution of the NPL overhang will also depend on a sustained improvement of banks' lending standards, to prevent a renewed build-up of risk concentrations,” the IMF spokesperson said.


The IMF discussion note puts Croatia – alone in SEE - among European countries where the continued rise in NPL ratios reflects delayed recognition of impaired loans or slow NPL write-offs or disposals.

“Croatia is only now coming out of a prolonged recession, which has taken a toll on the quality of the loan portfolio,” the IMF spokesperson said, adding that slow and cumbersome insolvency procedures have made it difficult to deal with excessively indebted companies in a prompt manner, including restructuring companies whose core business was basically sound.

A Pre-Bankruptcy Settlement Law enacted in 2012 sought to alleviate these concerns, but IMF notes legal complications have emerged, limiting the law’s effectiveness. “The new insolvency framework for corporations will hopefully resolve many of these concerns, facilitating a more prompt resolution,” the spokesperson said.

In IMF’s view, sound macroeconomic policies, including growth friendly fiscal consolidation and structural reforms aiming at making the economy more efficient and competitive, are required to help bring NPLs in Croatia back to more normal levels.

The fund recommends reducing the costs and uncertainties of dealing with new NPLs as then banks would be more inclined to lend, even at lower interest rates if risks are effectively reduced.

“Anecdotal information suggests that investors inquired about purchasing [Croatian] NPLs in bulk, but the size, price and legal issues reportedly cooled their interest,” the IMF spokesperson said.


In Slovenia, NPLs have fallen from a peak of about 18% of gross bank loans in 2013 to around 11% at present, aided in part by transfers of NPLs to the country’s ‘bad bank’, BAMC.

“The Implementation of a strategy to address NPLs related to [small and medium-sized enterprises] SMEs would bring the NPL ratio closer to its pre-crisis levels,” the IMF spokesperson said.

The fund has recommended that the authorities establish guidelines for voluntary creditor-debtor negotiations, including simplified debt-restructuring options, to promote debt workouts for viable SMEs.

The IMF sees more room for progress to be made in reducing aggregate corporate debt relative to Slovenia’s gross domestic product and corporate equity by intensifying privatization efforts, particularly if those efforts bring fresh equity.

In addition, the fund believes protective measures such as implementing a centralized credit registry and a monitoring system for connected lending would lower the probability of future NPL problems.

($=0.8759 euro)