New sales of non-performing loans (NPL) from banks in Central and Eastern Europe (CEE) will decline in the upcoming years. At the same time deals from other financial activities will accelerate, says forecast by consulting company Deloitte in its 2018 report.
Activity on markets that have already tackled most of their NPLs are likely to gradually subside in the coming years and the trade of other non-core assets – among others performing leasing and loan portfolios, subsidiaries of financial institutions as well as servicing platforms – will gain momentum, say experts from Deloitte. This trend will be driven by the consolidation of the banking sector as well as banks’ efforts to reshape their portfolios and divest assets considered as strategically non-core. On the other hand, they still anticipate some larger transactions on markets considered to enter the final phase of the deleveraging process as new comers are assessing the option of selling their non-performing loan books in order to accelerate the balance sheet clean-up.
CEE loan sales markets recorded a subdued activity in 2017 and the first half of 2018, compared to record deal-making in 2016 as banks have been gradually decreasing their NPL portfolios to a sustainable level. Processes like these we have also seen in Bulgaria, , but they continued throughout 2018 and significant portfolios are expected to be transferred this year. After numerous large portfolios purchased and loans acquired as a result of forward flow deals (type of framework agreements), the Debt Collection Agency (DCA) is again at the forefront of the assets of the receivable companies, operating in Bulgaria.
Deloitte also said that as a result of continuously diminishing NPL portfolios, competition remained strong on the demand side mainly among investors who have already built their servicing capacity in the region. However, the
tools of credit portfolio management also included significant write-offs of bad debts as well as restructuring agreements instead of traditional in-court and collateral enforcement proceedings.
The economic upturn also contributed to a better financial position of both corporates and households, which gave a stimulus to the repayment of legacy non-performing loans. The improvement of the credit portfolio quality is also evidenced in the declining default rates that are indicative of the inflow of new NPLs. Nevertheless, time since the rebound of lending is relatively short to draw robust conclusions in terms of the NPL formation in the coming years. The expected rise in interest rates from the historical lows may also put pressure on the debtors’ repayment capacity.
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