The Central Bank of Hungary (Magyar Nemzeti Bank, MNB) and the European Bank for Reconstruction and Development (EBRD) held a workshop under the Vienna Initiative on ways to assist banks’ and the authorities’ efforts at the resolution of non-performing loans (NPLs) through concrete and sustainable actions.
The prominently attended meeting in Budapest today brought together leading bank groups operating in Hungary, potential investors and financial and legal advisors as well as government representatives, European institutions as well as the International Monetary Fund, the World Bank and the EBRD. The workshop was opened by Piroska Mohácsi Nagy, EBRD Director for Country Strategy and Policy in the Office of the Chief Economist, and Ádám Balog, Deputy Governor of the Central Bank of Hungary.
“NPL resolution has moved to the top of policy makers’ agenda in central and eastern Europe, where NPL ratios are often high and negatively impact new credit and ultimately growth. Leaders in the region are actively looking for market-based solutions to clean up bank and corporate debtor balance sheets. The EBRD along with the IMF and the World Bank is providing coordinated support to country authorities and banks to remove obstacles to NPL resolution”, Ms Nagy said.
MNB Deputy Governor Balog added that “the close co-operation with the EBRD is very important to the MNB. The remarkable interest for the workshop today points to the relevance of the problem and the necessity to deal with high NPLs. To manage the problem we need to be innovative and think outside the box. Our innovation was to set up an asset management company (MARK), a commercial operator buying at market prices from the second half of 2015, which pursues the macroprudential mandate of the MNB. We believe that MARK is the right, market friendly way to tackle the problem in the commercial real estate segment in Hungary, where high NPLs do not only pose risks to the resilience of the banking sector, but also weigh on credit growth.”
The participants discussed the legal, tax and regulatory environment in Hungary for NPL resolution. They also examined in-house NPL management, including out-of-court restructuring and ways to facilitate sales of corporate NPL portfolios as well as experiences with asset management companies (“bad banks”). International professionals set out examples of international best practice.
Follow-up actions identified during the workshop include:
- 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 the 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 on a fully commercial basis with strengthened governance to promote a secondary market for NPLs.
The workshop in Budapest took place under the auspices of European Bank Coordination (“Vienna”) Initiative, which has been calling for decisive, timely and targeted action to address NPLs. After presenting a number of resolution strategies in September 2014, the Initiative has now started supporting individual country action plans, led by country authorities and supported by IFIs and the European authorities participating in the Vienna Initiative.
The MNB and the EBRD have been working closely together on NPL issues since 2014. This collaboration has intensified following the signing on 9 February 2015 in Budapest of the Memorandum of Understanding between the Government of Hungary and the EBRD on cooperation to support the banking sector and the real economy.
The workshop concluded with a high-level panel about a time-bound action plan for follow-up and next steps.