EBRD lays out practical approach to resolving Bulgaria’s bad loans

By Olga Rosca
@olgarosca

EBRD lays out practical approach to resolving Bulgaria’s bad loans

Bank calls for more reforms to unlock private investment in NPL market

As non-performing loans (NPLs) remain a problem restraining the Bulgarian banking sector and holding back the economy, due to the reduced availability of credit, the EBRD has underlined its commitment to work on concrete and achievable solutions.

During a workshop in Sofia today Nick Tesseyman, EBRD Managing Director for Financial Institutions, said: “Non-performing loans have long been recognised as a key impediment to revival in credit markets. Even when fully provisioned, they absorb managerial time in banks and firms and make performing loans more expensive. While noticeable improvement has been made, the sustainable resolution of NPLs requires time and further reforms. The EBRD – together with colleagues from the International Monetary Fund (IMF), the World Bank Group, and the European Commission – stands ready to support banks, the regulator and the authorities in Bulgaria in their efforts to find concrete solutions.”

The half-day event, held under the Vienna Initiative, brought together leading banking groups operating in Bulgaria, domestic and regional investors, financial and legal advisors as well as representatives from the Bulgarian National Bank (BNB), government authorities, European institutions, the IMF, the World Bank Group and the EBRD.

While the BNB has taken steps to support the reduction in NPLs and progress has been made, with the NPL ratio dropping from 14.8 per cent in March 2015 to 12.4 per cent in March 2017, overall levels remain high. Consequently, participants discussed further reforms needed to create an environment that will unlock NPL investment by private investors, which will ultimately lead to a deeper, more liquid NPL market and a sustainable resolution.

More investment can contribute to a strong and efficient NPL market. It can also free up the potential for fresh lending to the real economy as banks restructure their balance sheets and increase their capacity to provide new credit to businesses.

Key challenges identified for attracting private investors include: (i) improving the capacity for NPL servicing and the skills required for restructuring, (ii) improving data transparency, including in collateral valuation, and (iii) developing incentives for out-of-court restructuring.

The EBRD has been at the forefront of helping authorities, regulators and lenders, in the countries where it invests, to address the problem of bad loans. The Bank leads the NPL work of the Vienna Initiative, which is a framework for safeguarding the financial stability of emerging Europe.

The EBRD is a leading institutional investor in Bulgaria. To date, the Bank has invested over €3.6 billion in the country, with a record €620 million in 2016 alone. In the years ahead, the Bank will aim to keep its level of investment at around €200 million per year in response to local demand. The EBRD’s operations in Bulgaria are headed by Larisa Manastirli.