Kateryna Rozhkova. Wanted: legislation to reboot lending
What is the NBU total amount of bad loans and how are they restructured?
The total NPL (“nonperforming loan”, “bad loan”) is about 54%. High levels of NPLs in the structure of the loan portfolio of PrivatBank and Russian financial institutions significantly affected the index. At the same time, I would note: private Ukrainian banks, including foreign capital, have reached the level of 30% of NPLs and we see a positive dynamics in the restructuring of bad loans. It is worth saying that the NPLs are reserved and the coverage level is 84%. It’s good.
Is there a significant difference in the percentage of bad debts depending on the type of banks, form of ownership?
Of course. Considering the banking system as a whole is wrong. It is clearly segmented and each of the segments has its own nuances.
The first separate segment is PrivatBank. Here, almost all of the corporate loan portfolio is one large NPL. Its level is 86%. And this is not a classic NPL, it is not subject to standard approaches to working with problem debts: Privat has been working with it in the London court, has filed lawsuits against PwC, the former owners. Today Privat gradually credits private entrepreneurs, small businesses. The proportion of nonperforming loans will de crease statistically, but their volume will not change until the full recovery.
Another segment is the Russian banks. In them NPLs are at the level of 71,5%. This is also a rather high figure. The problem is the status of these financial institutions: they belong to the aggressor country. They had borrowers in the Crimea and in the ATO zone. And the part that lives outside these territories enjoys the moment: the patriots do not pay to the banks of the aggressor country. But these borrowers for get that they have been credited by Ukrainian depositors. Since status of Russian banks is uncertain at present, because they do not have the potential here because of the geopolitical situation, it is difficult for them to find buyers. The situation is delayed, debts are not served. A positive thing is that VS Bank is sold, from BM Bank we already have a decision on self-elimination. Next in line is VTB Bank. There remain PIB and Sberbank: they have an ability to curtail under the control of the NBU and the Deposit Guarantee Fund, but not for sale – we do not see the buyer.
The next group is other financial institutions with foreign or Ukrainian capital. The average level of NPLs in them is 30%. Moreover, the main volume of the NPLs is concentrated in banks with Ukrainian capital, which did not recognize problem loans back in 2008 (as did banks with foreign capital – Aval, BNP Parib as, OTP Bank) and, accordingly, did not restructure them.
How do Ukrainian banks now get out of this situation?
Local restructuring processes take place. But many banks, in order to eliminate bad loans from the balance sheet and not to be capitalized, are charging a mortgage and taking this mortgage on their balance sheet. It is alarm ing. The first risk is in the revaluation of as sets. The second is that banks instead of being credit institutions turn into asset management companies. And assets do not pay interest and do not give a cash flow, so the situation can lead to a loss of liquidity and capital. There fore, the NBU requires banks to provide a mar keting plan for the sale of these assets and convinces that even a discount restructuring is sometimes better than taking assets on the balance sheet.
And what is the situation with the rest of the state-owned banks, except Privat?
Of course, Privat was a big blow to the bud get. But believe me, Oschadbank is not less of a problem. Only at the end of last year we agreed upon additional capital of 5.75 billion because of deterioration in the quality of the portfolio.
The only one in a good position is Ukrgasbank. The rest have a high level of NPLs and by their loan portfolio it is easy to trace the transfer of power in the country, which business groups were credited. There are two problems. The first one is TOP 20 borrowers form more than half of all NPLs. Usually, if they have a loan in Oschad, then there is also one in Exim. Several loans with different mortgages are difficult to restructure. The second is the representatives of the business groups that occupy the lines of Forbes. They, apart from declarations of readiness, do not consider it necessary to serve debts in stateowned banks, or even begin a dialogue on this.
How strict will be the NBU’s position on restructuring these debts?
Of course, the NBU has levers of influence on Oschad and Exim: through not approving the increase in capital for them. They have Polischuk, Bakhmatyuk in a nonserved portfolio.
Please declare their default and start the claims. Press the borrower, as a commercial bank would do. And when there is no pressure on the borrower, when you say that you are in the negotiation process with them, and so it lasts for four years – they are not going to pay anything back and you can do nothing. At the same time, you ask the National Bank to confirm for the Cabinet of Ministers that you need capital. Not confirming the capital, you can force banks to work.
What laws does the NBU lack to deal with problem loans and is it possible to adopt them with the current composition of the Verkhovna Rada?
The NBU has a number of opportunities to push the banks towards restructuring. But we have no influence on their counterparties. And this is a problem. In order to solve it, we, together with the EBRD and other consultants, have developed a bill on companies dealing with problem debts management. The idea is simple: to enable any potential investors to create such companies and, with the help of them, to buy out bad loans. Or look for potential buyers. Or help banks to restructure these debts.
I’ll explain how it can work. Imagine: there is a real oil company operating in the market, it affects the economy, but has been hit by the crisis and has a high level of NPLs. If banks decide to bring it to bankruptcy, they can literally break it into pieces. However, if this company agrees with banks, then it will be possible to restore solvency. To restore its solvency, it needs working capital, and it cannot get it ... Circle is closed. It is here that another company should come that is ready to offer it a tool for recovery.
The EBRD is waiting for the adoption of a law that will enable the establishment of such companies. This is a real business that will en able investing in the Ukrainian economy. Only this year they have invested up to 300 million euros in creating similar companies in East ern Europe. But the law was curtailed in the depths of the committee.
What is preventing banks from fully re- storing crediting and how to eliminate these obstacles?
The average price of deposits of individuals in UAH is 13.6%. The average rate of return on loans to legal entities is 16.3%. The situation is normal. I am convinced that no interest rate creates a problem for the restoration of crediting, but the problem of legal risks, from which the banks are trying to protect – put them in the rate and the commission. But if they adopt two laws – 6027D and 2456D, on protecting the rights of creditors and protecting the rights of consumers of financial services – banks will reduce risks. I consider the need to adopt these laws as critical.
We already see a revival in the banking sector - in consumer lending, business lending. Maybe it is not so noticeable statistically, in absolute growth, because the bad debt write-off is continuing. But banks carry on lending.
