Non-Performing Exposures - CEE

Preface

Throughout the CEE/SEE region, the gross NPE ratio has more than halved from its peak of 9.8 % in the first half of 2014 (when we published the second edition of this guide) to 3.8 % at the end of 2019. From 2014 to 2019, NPE volumes decreased from EUR 65.7bln to EUR 33.8bln (see source).

However, the COVID-19 pandemic has put new pressure on global as well as CEE/SEE economies.

Many regulators and legislators have swiftly reacted to the pandemic, for example by introducing moratoria. Also, many states have introduced state-supported financing/guarantee schemes to fuel their economies.

While the scope of these measures (moratoria as well as state-supported financing) varies from jurisdiction to jurisdiction, they have one factor in common: they are temporary and will expire at some point in time (soon). And while the magnitude of the spike in non-performing exposures and its timing is still uncertain, many are expecting a cliff-edge effect when these measures expire.

In combination with a hugely compressed interest rate environment that adversely affects banks' ability to generate earnings (required to counterbalance the impact of increased provisioning on banks' balance sheets), this is likely to lead to another surge in transactions in non-performing exposures (portfolios as well as single-name corporate exposures).

Also, the development of efficient secondary markets for distressed assets is one of the key pillars of the NPLs strategy presented by the European Commission on 16 December 2020. 

We therefore take great pleasure in presenting to you the third edition of our thoughts on some key legal issues which sell- and buy-side industry participants should consider when examining the viability of NPE transactions (single names and portfolios) in the CEE/SEE region. We seek to combine this with observations about legal and market (standard) practice developments that have taken place since the last edition of this guide.