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Workout Challenges and Opportunities
in CEE: EBRD’s Perspective
Kamen Zahariev: Director Global Restructuring, EBRD
EBRD-Where we invest
21 November, 2017 2
EBRD – Where we invest (2)
International financial institution, promotes transition to market economies
in 36 countries
On average the EBRD makes 380 investments annually with a total value
of circa Euro 8 - 9 billion
Top 5 countries accounted for over half of our overall business volume to
August 2017:
1. Turkey
2. Egypt
3. Kazakhstan
4. Poland
5. Ukraine
Lebanon – Country of Operation as of September 2017
Russia – sanctions remain in force, no change currently expected
October 3, 2017 3
The CEE Region is Growing Again
4
… but NPLs remain stubbornly high…
21 November, 2017 5
..and sustainable resolution is
yet to be achieved…
6
Around 70% of all NPL reductions
recorded by national regulators and
the ECB are in fact NPL sales,
transfers to AMCs and other forms of
regulatory de-recognition.
… what are the reasons??
7
STRUCTURAL
Many banks are unprepared to manage NPLs effectively: lack
of quality NPL data; optimised resolution strategies;
experienced NPL managers. NPL servicing platforms still weak
(except in retail).
Debtor- friendly insolvency regimes; inability to remove
incumbent owners or force creditor-led restructuring proposals
Lack of out of court restructuring mechanisms, regulation of
“new money” status;
Opaque financial reporting and accounting practices allow
overleveraging and questionable practices to go unreported for
too long.
… what are the reasons?? (2)
8
MACRO-ECONOMIC
FROM A “SINGLE EVENT” DEBT
CRISIS TO A “SERIAL DISTRESS
CHAIN”
CONTINUOUS REPLENISHMENT
OF THE NPL PORTFOLIOS
Operating Assets: current vs. Russian Crisis
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
New projects
Existing projects
Total
Russian Crisis
1998-2002
EBRD NPL Evolution
… what are the reasons?? (3)
10
POLITICAL RISK:
NPL portfolios throughout the
wider EBRD region are affected
by political risk as never before…
Primary Causes of Impairments in 2016
21 November, 2017 11
52%41%
7%
Primary Causes of Financial Distress in 2016 CR 1-2 transfers
Macro-economic/sector
Client Specific*
Project Handling**
(14)(11)
(2)
* Vulnerability of business model, product, and /or service; Poor cash flow management; Weak Management and/or Shareholders behaviour incl.
Misuse of proceeds
** Origination; Monitoring and Implementation
Contributors to Financial Distress in 2016
21 November, 2017 12
29%
17%
18%
17%
13%
6%
Contributors to Financial Distress for 2016 CR1-2 Transfers
Vulnerability to Macro-economic and/or sector trends
Vulnerability of business model / product / service
Poor cash flow management
Weak Management, Shareholders and Behaviour
Origination*
Monitoring / Implementation**
* e.g. Excessive FX risk taking; Weak sensitivity analysis; Lack of control over release of funds, Inadequate assessment of sources of
repayment/exit
** e.g. Weak monitoring of macro-sector or project specific risks; Unreasonable waivers / amendments, covenant breaches and lack of
action when breached; Lack of response to red flags
EBRD’s Role as Multilateral
13
Structural reform work to tackle the NPL problem:
assessment of the key impediments to NPL resolution, and the coordination of NPL
Working Groups with local regulators and key stakeholders to design and implement
realistic NPL action plans with focus on specific reform targets: insolvency, tax,
accounting, supervision etc.
Capacity-building to strengthen local skills where needed:
The strengthening of the insolvency profession (in line with best practices); training of
judges and insolvency office holders, and
training of workout specialists in commercial banks.
Knowledge dissemination to facilitate best practice approaches to NPL resolution:
Organise seminars where the investors can exchange views with regulators and other
stakeholders, and learn from each other.
Specialist information hub on NPL’s: NPL Initiative website, where best practices from
regulators, industry and academics are freely available.
Finally, we publish a regular NPL Monitor, where we track reform progress in various
countries and provide a snapshot of recent NPL transactions.
EBRD’s Role as Multilateral
14
Add to Your Favourites:
http://npl.vienna-
initiative.com/
Workout Challenges and Opportunities
in CEE: EBRD’s Perspective
Kamen Zahariev: Director Global Restructuring, EBRD
THANK YOU FOR
YOUR ATTENTION !!