May 15-16, 2018: Encouraging a comprehensive approach to resolving non-performing loans (NPLs) was the focus of a two-day World Bank conference in Vienna. As many of its client countries continue to experience high levels of NPLs, the World Bank Financial Sector Advisory Center (FinSAC) convened some 100 delegates from 25 countries to share international experience and discuss holistic ways of addressing the issue.
Reducing NPLs in a sustainable manner is a complex task that typically requires a broad range of coordinated policy measures. The Vienna conference examined the following four key areas, with expert input including from the World Bank, European Central Bank, European Banking Authority, European Commission and European Bank for Reconstruction and Development:
1. NPL recognition, including latest initiatives from standard setters on harmonization of regulatory definitions of NPLs and forbearance, new accounting standards (IFRS 9) that represent a transition from incurred loss to expected loss approaches, and the ECB¡¯s guidance to banks on the resolution of NPLs. The seminar also included a specific session dedicated to collateral valuation.
2. Workout strategies: Different national experiences, including the lessons learned, were offered by senior representatives from Slovenia, Bulgaria, Malaysia, Greece, Spain, Austria, Latvia, and Serbia. Topics addressed included operational frameworks for the workout process, and government-led approaches towards resolution, including the use of asset management companies.
3. Enabling environment for NPL resolution with an emphasis on the legal environment that determines prospects for creditors to recover their claims, considering the state of distress of the debtor.
4. Development of markets for NPLs: A panel of industry representatives discussed prospects and preconditions for the further development of markets for NPLs in the region.