Upload
lamquynh
View
218
Download
0
Embed Size (px)
Citation preview
NPL Resolution –
State of Play
Croatia Damir Odak, Vicegovernor, Croatian National Bank
Vienna Initiative Workshop
Vienna, June 26, 2015
Why is NPL resolution so important?
NPL isn’t accounting or financial problem, but it has
significant impact on competitiveness of “real” sector
Three major distortions caused by high NPL:
Higher interest costs for performing debtors
Suboptimal use of real economy resources
Higher risks and negative impact on corporate governances –
moral hazard
2
Higher interest costs
3
Corporate Retail
Banking System as of June/2014
Croatia about EU Average
Izvor: ECB (Consolidated banking data), Lipanj 2014.
*LTD ratio is ratio between total loans and non-banking deposits
4
Retained profitability
Strong capital
Mild deleveraging
Growth of NPL
Banking is in overall good shape
5
ROA before and after Value adjustment costs
(VAC)
Source: ECB (CBD)
Profitability of Croatian banks (ROA) is higher compared with CEE and Euro-zone
countries.
However, the difference from Euro-zone is even greater when operating profitability is
observed, indicating that the credit risk is “eating” higher margins of CEE banks.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2008 2009 2010 2011 2012 2013 Jun-14
%
Euro zone - ROA CEE - ROA
Croatia - ROA Euro zone - ROA+VAC
CEE - ROA+VAC Croatia - ROA+VAC
Three phases in NPL resolution
1. Recognition and accounting
2. Workout
3. Write-off
6
In Croatia generally phase 1 is completed
Phases 2 and 3 would require significant additional effort
1. Recognition and accounting
7
Dynamics of NPL recognition
2005.-2014.
Decrease of coverage was consequence of inflow of new NPLs and application of very optimistic assumptions;
In period 2010-2012 on site supervision increased provisioning, but with high cost in terms of supervisory resources;
After implementation of new regulation in 2013 coverage dynamically increased.
Decrease of NPL coverage
began already in 2005.
As after beginning of the
crisis coverage plunged
below 40%, change of
regulation become
necessary.
8
Share and coverage of NPLs
Source: HNB
6,2% 5,2% 4,8% 4,9%7,8%
11,2% 12,4% 13,9% 15,7% 17,1%
60,3%56,8%
54,4%
48,7%
42,8%38,8%
41,4% 42,6%46,2%
51,3%
0%
10%
20%
30%
40%
50%
60%
70%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NPL ratio NPL coverage
Change of regulation
9
in 2013 amendments to the Decision on the classification of loans were adopted
those amendments made the following changes: compulsory provisioning was regulated in detail:
compulsory 10% provisioning 90 days past due (delinquency), if no collateral was activated
compulsory 20% provisioning one year after delinquency, if adequate collateral was not activated
compulsory 30% provisioning two years after delinquency, regardless of legal action taken to activate a collateral;
after accounting for 30%, each 6 months an additional 5% compulsory provisioning
minimum of 1% provisions was established for NPLs
regulation of restructured loans (how to treat them after restructuring, criteria for their rehabilitation into performing loans)
compulsory minimum haircuts and collection periods were introduced for real estate and movable property
consecutive compulsory provisions (10%, 20%, 30%) were aimed at motivating banks to timely start foreclosure, while the additional 5% provisioning was a kind of “lump sum” correction for all other noticed aberrations from best practice; others are meant to adjust NPL & forbearance definition to the new definition approved by EBA BoS (ITS on supervisory reporting regarding forbearance and non-performing exposures)
NPLs and regulatory capital
10
ratio between carrying value of
NPLs and regulatory capital more
then tripled between 2008 and
2013
implementation of new regulation
in 2013 stabilized it about 40%
on average Croatian banking
system is able to maintain minimal
capital requirements even with full
write-down of NPLs
4,9 6,4 11,7 18,9 21,2 22,7 24,2 23,3
11,312,8
22,2
34,8
38,139,6
43,741,9
0
5
10
15
20
25
30
35
40
45
50
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014
%HRK billions
NPLs CV NPLs CV/Capital - right
Product specific situation
11
Corporates Households – home loans
7,9% 8,4%9,1% 9,5% 9,7%
68,7%72,9% 74,5% 75,0%
69,9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0%
4%
8%
12%
16%
20%
2010 2011 2012 2013 2014
NPL ratio NPL coverage - right
1,7% 1,6% 1,7% 2,7%4,5% 5,2% 6,2%
8,1% 8,8%
49,2% 50,0%
42,1%
35,7%
29,0%
33,4% 34,4%
39,4%
43,8%
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012 2013 2014
NPL ratio NPL coverage
7,7% 7,3% 7,5%
12,9%
18,2%20,3%
25,0%28,3%
30,8%
52,2%
45,3%
38,1%
33,2% 32,0%35,1% 36,4%
41,2%
48,7%
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012 2013 2014
NPL ratio NPL coverage
Households – general
purpose cash loans
Comparative NPL Coverage
Source: IMF, FSI data
12
Comparation with countries having similar NPL ratio
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014
%
Ireland Italy Slovenia Bulgaria
Croatia Hungary Romania
2. Workout
13
Experiences with collection
Corporate:
in period 2008 – 2014 only 18% of all initiated foreclosures on business
properties were successful;
Out of that number, less then half occurred with third party, while
remaining estates were bought by the bank;
Achieved average price was below 50% of initial evaluation
Retail:
consumer loans are fully provided. Workout activities are significant
and involve also portfolio sales.
we are in process of collecting systematic data on workout of housing
loans. Existing evidences indicate that workout is very limited.
one middle-sized bank reported that in last 6 years they initiated 197
foreclosures. Of this number 10 was successfully completed, and 8 are
pending.
14
Why is collection slow?
Major reason is illiquid housing and real estate market.
In 2012 real value of housing sales fell to 25% of 2008
figures.
Collected data about resolution through sale of
commercial real estates also indicate low turnover.
NPL ratio in critical industries: construction and real
estate development is over 60%, and it is all
collateralized.
Courts work slowly and sometimes unpredictable, but
low marketability is major obstacle for collection.
15
3. Write-off
One of reasons for high NPL ratio in Croatia is the fact
that write-off isn’t tax deductable if creditor didn’t
previously use all available legal means to collect;
as using all legal means is time consuming process,
significant part of 100% provided loans remain on
balance sheet for extended period of time, creating
unrealistic NPL “bulge”.
16
Conclusions
NPL resolution is significant factor with influence on
competitivity of real economy, therefore on economic
growth
It is necessary to recognise and properly account for
value of NPLs, and to write them off once preconditions
were met
For positive impact on real economy, effective workout
is a key.
17