In the first half of the decade, five countries in the region – Romania, Slovenia, Bulgaria, Serbia and Albania – saw non-performing loans pass 20% of the total, while in Hungary and Croatia figures reached the high teens.
By the end of last year, the only markets where NPL ratios remained in double figures were Albania (14.3%), Croatia (12.5%), Serbia (11%) and Bulgaria (10.2%).
These reductions have been driven by legislative and regulatory changes in key countries such as Romania, which have encouraged banks to write off and dispose of legacy bad debts, as well as by increasing investor appetite for impaired assets from the region.
In 2014, with competition crimping margins in markets such as Spain and the UK, international buyers began looking further east. Romanian banks set the ball rolling, selling close to $2 billion worth of NPLs in the two years to the end of 2015.
More recently, sizeable portfolios have also been changing hands in smaller markets. Sales of NPLs got under way in Hungary in 2015, mainly in the mortgage sector, while last year saw increasing activity across the Balkans.
UniCredit sold a €448 million portfolio of Croatian NPLs to Czech distressed-debt specialist APS Holding in June and also found buyers for €190 million-worth of bad debts in Bulgaria.
Piraeus Bank has also sold several chunks of Bulgarian NPLs over the last two years as part of a balance sheet clear out in preparation for an exit from its Balkan assets, as well as €43 million of corporate and small business loans in Serbia last summer.
We want to create a well-functioning infrastructure for continuous NPL resolution
– Bojan Markovic, EBRD
Deals are still coming through. In January, a consortium of Deutsche Bank, AnaCap and APS bought a €360 million NPL portfolio from Alpha Bank Romania, while two transactions worth €1 billion in total are due to be completed in Croatia by the end of June.
Slovenian market leader NLB also announced plans in March to sell €115 million of Serbian NPLs, as well as a debt servicing company in the jurisdiction.
Martin Machon, head of APS Holding, says transactions will likely also emerge from Hungary, as well as some of the smaller Balkan markets.
“We are closing a deal in Bosnia and looking at Albania,” he says. “It’s a very difficult market, but there might be something there later on.”
Nevertheless, the pace of NPL sales in central and eastern Europe has slowed. Volumes last year fell sharply from 2016’s record €7 billion to around €3.3 billion and are expected to decline still further this year.
This is partly due to a slowdown in supply as stocks shrink and larger regional banks come to the end of their balance-sheet cleaning. Erste, one of the first movers in the market, sold €4.2 billion-worth of NPLs – mainly from Romania, Hungary and Croatia – between 2012 and September last year.
The Austrian group says no further sales are planned at present.
“Our current approach to handling NPLs is generally a matter of fine-tuning, with a distinct preference given to addressing impairments through internal workout,” the bank tells Euromoney.
A more worrying reason for the anticipated decline in NPL sales in CEE is lack of demand. Machon says international buyers are losing interest in what is often seen as a fragmented and complex region as the prospect of a flood of supply from Greece and Cyprus looms large.
According to the EBRD, NPL stocks in the two Mediterranean countries currently stand at €124 billion, compared with just €46 billion for the whole of central and southeastern Europe.
“Big investors aren’t going to enter a country for one deal, they need a pipeline,” says Machon. “If you buy a portfolio in Greece, you know there’s another €100 billion, so your chances of winning a second and third are fairly high. But entering Croatia and studying the market just for one deal isn’t worth it.
“No one in London will now look at smaller markets such as Hungary and the Balkans. Everyone is waiting for Greece.”
The EBRD, which has been one of the key drivers of NPL reduction in CEE through its work with policymakers and market participants, is hoping to revive flagging interest in the region by putting its own cash to work.
In December, the development bank approved €300 million of financing for co-investment in NPL projects. The funds can be used to take direct equity stakes of up to 15% in NPL servicers, to make equity investments in NPL portfolios in partnership with private-sector buyers and to provide debt financing to an NPL acquisition structure.
Bojan Markovic, the EBRD’s deputy director for economics, policy and governance, says the aim is to attract €1.5 billion of co-investment from global investors – equivalent to around €10 billion-worth of NPLs at current market prices – by leveraging the bank’s regional expertise.
“We can help investors get comfortable with the region, bring them in, and after that they will continue to function without us,” he says.
He stresses that the EBRD’s aim is not merely to clear stocks of legacy NPLs.
“There will always be NPLs – the issue is whether you can deal with them or whether they keep accumulating,” he says. “We want to create a well-functioning infrastructure for continuous NPL resolution.”
A chunk of the EBRD’s cash will likely be swallowed by Greece and Cyprus, which come under the NPL initiative’s remit, but Markovic says the bank will also focus on smaller markets in the western Balkans.
Link to the source of information: www.euromoney.com
Written by Admin
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