The role of EBRD in NPL Resolution and Restructuring Kamen Zahariev, Director, Corporate Recovery Rome, June 2016

EBRD’s role in NPL Resolution and Restructuring Policy 2 Economics, Policy & Governance (EPG) Policy Dialogue Technical Cooperation Vienna 2 Initiative EBRD Legal Reform Team Supporting legal reforms Private principles for out-of-court restructuring Capacity building/training on insolvency A successful NPL resolution strategy relies on coordinated action with other multilaterals and Policy Dialogue with local regulators and Governments FOR MORE INFORMATION VISIT: initiative.com/npl-initiative/ initiative.com/npl-initiative/

NPL Policy developments in CEE: SLOVENIA: A policy strategy paper for Slovenia containing a section on “Solving the non-performing loan problem” ROMANIA: a series of proactive steps and recommendations established by the National Bank of Romania aimed at supporting the sustainable resolution of NPLs in the banks’ balance sheets HUNGARY: the recent set up of a bank asset management company in Hungary (MARK). FOR MORE INFORMATION VISIT: initiative.com/npl-initiative/ initiative.com/npl-initiative/ 3

EBRD’s Role in NPL Transactions 4 Investor in NPL portfolios (requires intensive DD ) Support for distressed asset investors as a minority investor consortium member Investor/lender in single-credit corporate restructurings Support for SPV or asset management structures with Private Investors Support/financing of NPL asset managers/servicers Focus on integrity and collection practices (Retail) Support work-out of corporate NPL porfolios (including “new money”). EBRD is working on different investment solutions to support NPL resolution

NPL sales in CEE gathered momentum 5 Over €4bn of NPL transactions completed in CEE in 2015 with an almost equivalent notional of transactions not completed Romania and Poland accounted for circa 80% of total transactions in CEE over the last 18 months Portfolios offered are often a mix: consumer unsecured, CRE-backed and corporate/SME portfolios Sellers have been predominantly subsidiaries of major European banking groups Source: KPMG, Deloitte, Debtwire, EBRD analysis NPL transactions in CEE have significantly increased in 2015 Despite such encouraging development a significant amount of portfolio sales were also not concluded: poor data quality, illiquid real estate market and inefficient legal/regulatory frameworks are often the reasons behind the pricing gap Further sales foreseen for 2016 as investors focus in CEE

EBRD engagements related to NPL asset managers 6 Frontex International Provided debt in 2014 Leading NPL asset manager & servicer in Bulgaria Unsecured retail loan sales TurkAsset Invested debt & equity in 2011 Leading NPL asset manager in Turkey Market is both retail and corporate All major private banks selling regularly KKR/Pillarstone In process of negotiation “New money” co-financing facility for on-boarded of Greek NPLs

Some Emerging Patterns 7  For unsecured retail loans the recovery process is mostly based on an efficient collection service and restructuring of debt, which can be particularly fruitful in the context of an economic recovery. Such transactions are often seen as a good stepping stone to new markets as investors can leverage on services provided by local collection agencies.  Residential loans/Mortgages may be less attractive to investors due to the stricter regulation, making enforcement and collection more challenging.  For corporate/SME loans secured by commercial real estate: detailed valuation is essential. Liquidity of RE market and efficiency of foreclosure will weigh on price. Economic recovery essential for rental and exit.  Corporate and SME loans requiring ability to turn around and restructure the underlying company are more challenging and may need additional funding to recover to a ‘going-concern’ basis. Ability to take control, and/to ‘cram down’ minority claim holders may be important considerations. The recovery process will require turnaround experts, legal expertise for restructuring of companies and a longer workout process with a more hands-on approach relationship with the borrower.

Support from regulators and government Issues such as lack of tax incentives upon loan transfer or write-offs or legal uncertainties related to the bankruptcy and insolvency law are obstacles to the development of the distressed asset market. development of alternative solutions for asset transfer, such as securitisation, can provide impetus for market development. Several authorities across the region have elevated NPL resolution in their respective agenda, underpinned by more stringent supervision. National action plans or NPL resolution strategies will inspire confidence that a coherent effort is made across all parts of the government, and regulatory authorities. 8