NPL resolution: a macro view

Transcription

1 NPL resolution: a macro view Gergely Fábián MNB-EBRD workshop on debt Restructuring and NPL Resolution in Hungary 3 March 215

2 29Q1 21Q1 211Q1 212Q1 213Q1 214Q1 High corporate NPL has been a problem for years 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. Restructured loans in this decomposition is available since 212. Source: MNB. 2

3 There has not been notable portfolio cleaning in the past 6 years 28Q1 29Q1 21Q1 211Q1 212Q1 213Q1 214Q1 4 Factors affecting changes in the ratio of non-performing corporate loans in the banking sector percentage point percentage point One-off sales to parent bank Stock component Portfolio impairment component Portfolio cleaning component Change in NPL ratio Magyar Nemzeti Bank 3 Source: MNB.

4 Larger loans might have been retsructured in more cases As a result, distressed loans are stuck for years Distribution of corporate NPL according to time elapsed since becoming non-performing Source: Central credit registry (CCR). Magyar Nemzeti Bank 4

5 A particular concern is commercial real estate loans segment 212Q1 213Q1 214Q1 Distressed project and other corporate loans within the banking sector 1 8 HUF Bn per cent NPL - project financing Restructured (excl. NPL) project financing NPL - other corporate loans Restructured (excl. NPL) other corporate NPL ratio - project financing (right-hand scale) NPL ratio - other corporate loans (right-hand scale) Magyar Nemzeti Bank 5 Source: MNB

6 Stronger cleaning is needed in the CRE segment Sales of distressed project loans in the banking sector 14 HUF bn per cent Total gross volume Volume excluding sale within group Share of sales within group (right hand scale) Magyar Nemzeti Bank 6 Source: MNB

7 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 is tied Resources are tied Excessive risk aversion Higher funding costs Magyar Nemzeti Bank 7 Source MNB.

8 Why is it not cleaned? Excess supply and a lack of demand for distressed assets Subdued capacity of domestic players Concealing losses in books Accommodative monetary policy helps banks procrastinating. Lack of concluded deals lower interest Licensing fot entry Sluggish legal procedures Wait-and-see strategy by banks Not just price, but size, proper information issue Laissez-faire by authorities Pricing mismatch 8

9 High vacancy in international comparison, but there is an improvement recently Hungary Ireland Netherlands Russia Czech Rep. Italy (Milan) Spain Poland Belgium Germany France United Kingdom Luxembourg Vacancy rate of capital city office markets in international comparison 2 % % Vacancy rate (213 ) Vacancy rate (214 ) Magyar Nemzeti Bank 9 Source: Jones Lang LaSalle.

10 Low capacity from domestic players Non-performing corporate exposures of workout factoring companies and the average contract size (end 214) 18 HUF Bn HUF million Financial institutions Volume of debt overdue Average contract size (right hand scale) Magyar Nemzeti Bank 1 Source: MNB, CCR.

11 Sale price / Grossvalue (per cent) Significant heterogeneity in market prices Sale prices and net values compared to gross value of individual distressed project loans (21-214) Net value/ book value ( per cent) Sales within group Market sales (excl. Group) Magyar Nemzeti Bank 11 Source: MNB.

12 Room for improvement in insolvency procedure, but not at any cost South Asia Latin America OECD high income Hungary Slovakia Poland Italy Czech Republic United States Austria Germany United Kingdom Netherlands Belgium Efficiency of insolvency procedures in international comparison per cent years Cost of insolvency procedures (as percentage of estate) Recovery rate (percentage of debt) Time span of insolvency procedures (right hand scale) Magyar Nemzeti Bank 12 Source: World Bank Doing Business 214.

13 MNB s approach Co-operation with EBRD from February 214 on the legal and regulatory framework Setting-up an AMC (MARK Zrt) to tackle the problems in the CRE segment Tighter prudential rules, justified by the uncertainties in the balance-sheets from stuck portfolio Magyar Nemzeti Bank 13

14 The established asset management company is MARK-et tool for portfolio cleaning Specialized, separate commercial operator, a willing buyer acting knowledgably with a sole focus on maximizing profit 1-year horizon with a limited enrolment window With professional staff Marked-based funding and prudent valuation based on thorough due diligence Following discussions with ECB and EC the strategy is changed Shift to market pricing IMF technical assistance on operations, hence working group with banks In the following months finalizations of operations 14

15 Targeted and focused solution with limited risks HUF FX NPL (~EUR.8 bn at book value) FX Restructured (~.8 bn) at book value HUF FX HUF Foreclosed properties (~.8 bn) Total (~EUR 2.5 bn) Take-up is planned to be EUR 1 bn at transfer prices; it can increase, if demand is higher Potential portfolio is estimated to be around EUR 2.5 bn, less than 5 deals Limited: less than 2.5 per cent of the MNB balance-sheet 15

16 Concluding remarks Muddle-through is not a solution, it is bad for the economy A sluggish portfolio cleaning stemming from market frictions justifies intervention Laissez-faire is over and was a wrong approach MNB wants fast and material portfolio cleaning The legal and regulatory environment needs to be streamlined MARK helps eliminating frictions in cleaning Magyar Nemzeti Bank 16