Addressing Non-Performing Loan Threats: EBRD's Strategic Approach
The European Bank for Reconstruction and Development (EBRD) has launched a new initiative aimed at addressing the persistent issue of non-performing loans (NPLs) in the Central, Eastern, and South-Eastern Europe (CESEE) region. The initiative, which includes a newly designed website, aims to provide transparent and accessible information about NPLs to public and private stakeholders, countering the risks they present in emerging Europe.
The CESEE region continues to grapple with significant issues related to NPLs, holding some of Europe's highest and most persistent levels of NPL stocks. Recognising the importance of addressing this challenge, the EBRD has developed a comprehensive approach to NPL resolution and debt restructuring, focusing on sustainable investment, financial sector development, and risk mitigation.
At the heart of the EBRD's strategy are Portfolio Risk Sharing Instruments with local financial institutions. By working closely with banks and financial intermediaries in emerging European countries, the EBRD aims to enhance access to finance for a variety of borrowers, including private individuals, corporate clients, and green projects such as energy efficiency, renewable energy, and sustainable transport.
In addition, the EBRD offers tailor-made structured products and actively supports its debt in secondary markets. This includes benchmark issuances in key currency markets and developing capital markets in emerging currencies, providing flexibility and tailored solutions for debt management and restructuring needs.
The EBRD's approach also emphasises risk mitigation and long-term patience in debt workouts. With strong liquidity and capital buffers, the EBRD can afford to be patient in debt restructuring processes, minimising net loan write-offs and losses. This capacity allows the EBRD to support sustained resolution of NPLs by structuring deals with extended tenors and mitigating non-financial risks like regulatory, political, and economic uncertainties.
Moreover, the EBRD engages in policy dialogue, regulatory framework improvements, and capacity building activities with local authorities and market stakeholders, fostering sound governance and improving frameworks for insolvency and debt restructuring. The bank aligns its NPL resolution and debt restructuring efforts with its broader objectives of supporting green and sustainable investments, as seen in programs like InvestEU in Croatia.
The EBRD's initiative draws on work specific to NPLs from various international organisations, including the International Monetary Fund (IMF), the World Bank (WB), European Investment Bank (EIB), European Commission (EC), and the EBRD itself. The bank argues against a one-size-fits-all approach to NPL resolution, advocating for tailored solutions that consider the individual burden and specificities of each country.
The EBRD is currently assisting Hungary with out-of-court restructuring, using frameworks like INSOL and the London approach, which are adapted to the local particularities of the banking system and actual needs of the market. Greater transparency and the implementation of robust NPL reform agendas remain a priority, according to the EBRD.
Europe's largest banks still hold approximately €1.1tn of NPLs, which undermines their stability and capacity to undertake new lending. The EBRD's new website includes a semi-annual regional NPL monitor providing trends in NPL vulnerabilities and information on debt transactions.
In conclusion, the EBRD’s tailored solutions for NPL resolution and debt restructuring in emerging Europe combine financial guarantees, structured financing products, risk mitigation strategies, and collaborative governance reforms, all embedded within a sustainable investment agenda to strengthen financial sectors and support economic recovery and growth in the region.
- The EBRD's strategy for addressing NPLs in emerging Europe extends beyond banking-and-insurance sectors, as it also includes trade finance, focusing on enhancing access to finance for various borrowers, such as private individuals, corporate clients, and green projects.
- To foster a conducive environment for investment in the CESEE region, the EBRD collaborates with international organizations like the IMF, WB, EIB, EC, and EBRD itself, advocating for industry-specific solutions that can effectively mitigate the risks associated with NPLs in emerging markets.
