Workout Challenges and Opportunities

in CEE: EBRD’s Perspective

Kamen Zahariev: Director Global Restructuring, EBRD

EBRD-Where we invest

21 November, 2017 2

EBRD – Where we invest (2)

International financial institution, promotes transition to market economies

in 36 countries

On average the EBRD makes 380 investments annually with a total value

of circa Euro 8 - 9 billion

Top 5 countries accounted for over half of our overall business volume to

August 2017:

1. Turkey

2. Egypt

3. Kazakhstan

4. Poland

5. Ukraine

Lebanon – Country of Operation as of September 2017

Russia – sanctions remain in force, no change currently expected

October 3, 2017 3

The CEE Region is Growing Again

4

… but NPLs remain stubbornly high…

21 November, 2017 5

..and sustainable resolution is

yet to be achieved…

6

Around 70% of all NPL reductions

recorded by national regulators and

the ECB are in fact NPL sales,

transfers to AMCs and other forms of

regulatory de-recognition.

… what are the reasons??

7

STRUCTURAL

Many banks are unprepared to manage NPLs effectively: lack

of quality NPL data; optimised resolution strategies;

experienced NPL managers. NPL servicing platforms still weak

(except in retail).

Debtor- friendly insolvency regimes; inability to remove

incumbent owners or force creditor-led restructuring proposals

Lack of out of court restructuring mechanisms, regulation of

“new money” status;

Opaque financial reporting and accounting practices allow

overleveraging and questionable practices to go unreported for

too long.

… what are the reasons?? (2)

8

MACRO-ECONOMIC

FROM A “SINGLE EVENT” DEBT

CRISIS TO A “SERIAL DISTRESS

CHAIN”

CONTINUOUS REPLENISHMENT

OF THE NPL PORTFOLIOS

Operating Assets: current vs. Russian Crisis

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

New projects

Existing projects

Total

Russian Crisis

1998-2002

EBRD NPL Evolution

… what are the reasons?? (3)

10

POLITICAL RISK:

NPL portfolios throughout the

wider EBRD region are affected

by political risk as never before…

Primary Causes of Impairments in 2016

21 November, 2017 11

52%41%

7%

Primary Causes of Financial Distress in 2016 CR 1-2 transfers

Macro-economic/sector

Client Specific*

Project Handling**

(14)(11)

(2)

* Vulnerability of business model, product, and /or service; Poor cash flow management; Weak Management and/or Shareholders behaviour incl.

Misuse of proceeds

** Origination; Monitoring and Implementation

Contributors to Financial Distress in 2016

21 November, 2017 12

29%

17%

18%

17%

13%

6%

Contributors to Financial Distress for 2016 CR1-2 Transfers

Vulnerability to Macro-economic and/or sector trends

Vulnerability of business model / product / service

Poor cash flow management

Weak Management, Shareholders and Behaviour

Origination*

Monitoring / Implementation**

* e.g. Excessive FX risk taking; Weak sensitivity analysis; Lack of control over release of funds, Inadequate assessment of sources of

repayment/exit

** e.g. Weak monitoring of macro-sector or project specific risks; Unreasonable waivers / amendments, covenant breaches and lack of

action when breached; Lack of response to red flags

EBRD’s Role as Multilateral

13

Structural reform work to tackle the NPL problem:

assessment of the key impediments to NPL resolution, and the coordination of NPL

Working Groups with local regulators and key stakeholders to design and implement

realistic NPL action plans with focus on specific reform targets: insolvency, tax,

accounting, supervision etc.

Capacity-building to strengthen local skills where needed:

The strengthening of the insolvency profession (in line with best practices); training of

judges and insolvency office holders, and

training of workout specialists in commercial banks.

Knowledge dissemination to facilitate best practice approaches to NPL resolution:

Organise seminars where the investors can exchange views with regulators and other

stakeholders, and learn from each other.

Specialist information hub on NPL’s: NPL Initiative website, where best practices from

regulators, industry and academics are freely available.

Finally, we publish a regular NPL Monitor, where we track reform progress in various

countries and provide a snapshot of recent NPL transactions.

EBRD’s Role as Multilateral

14

Add to Your Favourites:

http://npl.vienna-

initiative.com/

Workout Challenges and Opportunities

in CEE: EBRD’s Perspective

Kamen Zahariev: Director Global Restructuring, EBRD

THANK YOU FOR

YOUR ATTENTION !!