NPL resolution in progress: the Hungarian experience Gergely Fábián

Transcription

1 NPL resolution in progress: the Hungarian experience Gergely Fábián Vienna Initiative 2: NPL Resolution in emerging Europe: Taking Stock and Next Steps 26 June 215

2 29Q1 21Q1 211Q1 212Q1 213Q1 214Q1 215Q1 Stock-taking: things look rosier Distressed corporate portfolio in the Hungarian banking sector 25 per cent per cent NPL ratio - gross Loan loss coverage - NPL (right) Restructured (excl. NPL) Loan loss coverage - restructured excl. NPL (right) Magyar Nemzeti Bank Note: Banking sector does not include foreign branches, cooperative savings. : Data on restructured loans is only available since 212 in this decomposition. Source: MNB. 2

3 But commercial real estate exposure remains a particular concern 212.I. II. III. IV. 213.I. II. III. IV. 214.I. II. III. IV. 215.I. Distressed project and other corporate loans within the banking sector 18 HUF bn per cent NPL - project loans Restructured (excl. NPL) - project loans NPL - other corp. Loans Restructured (excl. NPL) - other corp. Loans NPL ratio - project loans (RHS) NPL ratio - other corp. loans (RHS) Magyar Nemzeti Bank 3 Source: MNB

4 Hungary Ireland Netherlands Russia Czech Rep. Italy (Milan) Spain Poland Belgium Germany France United Kingdom Luxembourg Improving CRE market and resolution of a large bank may intensify cleaning, but it would take still too long time Vacancy rate of capital city office markets in international comparison 2 % % Vacancy rate (213 ) Vacancy rate (214 ) Magyar Nemzeti Bank 4 Source: Jones Lang LaSalle.

5 Why is it not cleaned? Distressed CRE market Subdued domestic capacity Foreigners are unfamiliar Lack of deals are discouraging Issue of loan servicing Wait-and-see strategy by banks Supported by laissez-faire of authorities Accomodative monetary policy Cherry-picking by sellers and bidders Issue of size and adequate information Slugggish legal procedures Magyar Nemzeti Bank 5

6 NPL weighs on lending, but not a peril to financial stability Corporate lending and non-performing loans Uncertainty in LGD Funding needs without interest income Opportunity costs as funds and capital are tied Resources are tied Excessive risk aversion Higher funding costs Magyar Nemzeti Bank 6 Source MNB.

7 What can be done? Improving legal and regulatory environment of NPL resolution Tightening prudential rules to safeguard financial stability AMC: Centralized bad banks to address potential systemic financial system and solvency concerns Stabfund by Swiss National Bank NAMA, SAREB and DUTB involving state aid High NPL, but no solvency risk In this case AMC can be established only on market basis Magyar Nemzeti Bank 7

8 MNB s integrated approach The clear goal is to increase the contribution of the banking sector to economic growth by eliminating the burdens and lurking risks of distressed loans from their balance-sheet Improving legal framework Tighter prudential rules AMC (MARK) Magyar Nemzeti Bank 8

9 What needs to be done? Waves are needed to attract surfers the MNB shall support the maintenance of the stability of the financial intermediary system, the enhancement of its resilience, its sustainable contribution to economic growth. Cooperation with EBRD 2 IMF technical assistances Cooperation with the Banking Association 9

10 A professional MARK-et operator with a 1- year business plan to tackle the problem Pro for the banks: They can free up Resources Management concerns and energy Lurking risks in the balance-sheet They can focus on new business opportunities Distressed CRE problem Added value of MARK: Long-term view, while banks can focus on lending Bundling of assets, creating size Broader restructuring toolkit State-of-art servicing platform 1

11 MNB-EBRD workshop follow-up till 216 Q1 Re-examine the existing licensing requirement for NPL purchasers in line with other countries in the region; Considering tax relief and other incentives for banks and debtors for cancellation of debt and debt for equity swaps in a restructuring context; Greater cooperation among banks to promote early out of court restructuring and applying the Budapest corporate restructuring principles; Considering a more significant role for banks as creditors in bankruptcy (reorganisation) procedure as well as in the liquidation procedure and the appointment of the insolvency office holder; Using the recently established asset management company (MARK) on a fully commercial basis with strengthened governance to promote a secondary market for NPLs. Magyar Nemzeti Bank 11

12 29Q1 21Q1 211Q1 212Q1 213Q1 214Q1 What about household exposure? 19% NPL ratio and it has not decreased Concentrated in the mortgage loans segment HUF Bn Household NPL per cent Ongoing actions: Raising the capacity of the National Asset Managment Company (NET) 6 6 Personal insolvency regime 4 4 Further steps are needed: 2 2 Fostering of sustainable restructuring NPL volume - mortgage NPL volume non-mortgage Annualized rate of portfolio cleaning - mortgage (RHS) Annualized rate of portfolio cleaning - non-mortgage (RHS) But addressing moral hazard Addressing administrative obstacles Source: MNB. Magyar Nemzeti Bank 12

13 Thank you for the attention! Gergely Fábián, Director, Financial system analysis Magyar Nemzeti Bank