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EBRD international professional course on cleaning banks’ balance sheet and managing and restructuring NPLs

An increasing number of banks have recently been successful in shedding their bad corporate and household loans that are difficult to recover, either individually or in tranches. During the years following the crisis, such transactions were a rarity due to a lack of interest on the market, but the trend has been reversed in recent years as the property market has recovered. However, owing to the cyclicality of crises, efficiently managing and restructuring non-performing loans will always be relevant. On the five-day course of the EBRD, the BIB and the Euromoney Learning Solutions in November, 25 financial professionals from ten countries learnt about the latest solutions with the help of leading market experts. 

An increasing number of banks have recently been successful in shedding their bad corporate and household loans that are difficult to recover, either individually or in tranches. During the years following the crisis, such transactions were a rarity due to a lack of interest on the market, but the trend has been reversed in recent years as the property market has recovered. However, owing to the cyclicality of crises, efficiently managing and restructuring non-performing loans will always be relevant. On the five-day course of the EBRD, the BIB and the Euromoney Learning Solutions in November, 25 financial professionals from ten countries learnt about the latest solutions with the help of leading market experts. 

In 2013, Hungary repaid its debt arising from the 2008 IMF programme early, but the government continued to consult with the IMF regarding the resolution of non-performing loans. The programme that included a regulatory and legal reform was strongly supported by the EBRD as well, because at that time the share of non-performing loans was high in both corporate and household debt, standing at around 16 per cent. The existing incentives did not adequately encourage banks to clean their balance sheets from bad loans or to restructure them: the proportion of market transactions in the poorly performing portfolio was marginal, and the principles facilitating out-of-court restructuring largely failed to deliver. 

In the end, by late 2015, the fundamentally improving property market developments and the increasing interest in non-performing portfolios shown by professional workout companies (for example Intrum Justitia Zrt. headquartered in Sweden or APS Hungary with its Czech background and the state-owned Hungarian Workout Company [MKK]) that appeared in parallel with that obviated the need for intervention.  

As a result of the pick-up in market activity, several banks decided to continue managing their receivables themselves, even though managing loans and properties is labour intensive and operating the acquired or obtained properties is also quite costly. In exchange, they have been able to reverse more provisions, therefore they can realise highly predictable profits from this activity in the next year.

Among large banks, Raiffeisen, Erste, CIB, UniCredit, and MKB decided to turn to the market and sell large holdings, so they opted for avoiding the consequences of the earlier bad decisions and loans. They could immediately realise profits, albeit a limited amount, by selling the loan portfolios, and now they can devote all their resources to acquiring new business. In the case of banks with an international background, the group-level strategies of the owners also played a role in the decision, but all the banks chose one way or the other after careful consideration.

Of course, this problem is global and topical, as several credit institutions all around the world need to face the risks of actual or potential non-performing loans. At the five-day course Problem Loans, Distressed Debt Restructuring and Introduction to Distressed Debt Sales organised by the Budapest Institute of Banking and the EBRD and held in mid-November, the EBRD and leading market experts (Deloitte, Euromoney Learning Solutions, McKinsey) addressed the latest theoretical and practical aspects of the emergence, management, restructuring and selling of problem loans in detail. The developments and opportunities were analysed extensively using many case studies and covering a range of topics from the reasons for borrowing to the optimal debt restructuring solutions. The course was attended by 25 financial experts from ten countries. The educational methods used combined formal theoretical teaching with case studies supported by market data and best practices. The case studies were based on real situations and helped the participants learn new assessment techniques derived from empirical evidence. The goal of the interactive course held in English was to provide the participants with practical, readily usable tools.

The presenters were Volker Hans Recker, a senior banker at the European Bank for Reconstruction and Development, McKinsey experts Ewa Bielecka and Tom Kolaja, Adrian Grant, a senior consultant of Euromoney Learning Solutions and Balázs Bíró, the head of Deloitte Hungary’s Financial Consultancy Division and a partner at the Central Europe Bank Portfolio Management Consultancy Services.

The European Bank for Reconstruction and Development (EBRD) was established in April 1991 to assist the market economy transition of Central and Eastern European countries and promote economic reforms in the region. At its founding, it was stipulated that besides its lending and investment activities, the development bank would also focus on providing advice and technical assistance. At that time, 40 countries joined to create the bank, but the number of shareholders has grown to 65, and the bank is now active in 30 countries in Central Europe, the eastern Mediterranean region and Central Asia.