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The EBRD’s NPL investment

EBRD’s NPL investments gain momentum

In November 2017, the European Bank for Reconstruction and Development (EBRD) launched an investment framework of EUR 300 million aimed to mobilise up to EUR 1.5 billion to reduce the high levels of non-performing loans (NPLs) in its countries of operation. With the launch of this facility, the EBRD looks to expand its investments across the region by collaborating with established investors in the relevant jurisdictions. Important progress is being made, with the first transactions expected to be signed shortly. KPMG is acting as sales adviser on some of the ongoing transactions.

What is the framework?

  • Countries: The framework focuses primarily on countries of central, eastern and south-eastern Europe (CESEE) where the NPL ratio exceeds 10%, as well as Greece, Cyprus and Turkey.
  • Funding: Under this framework, the EBRD can commit to minority investments for a total of up to EUR 300 million, which is to be complemented by external financing of up to EUR 1.2 billion from approved commercial partners.
  • Types of investments: The EBRD can allocate the funds to acquire minority stakes in NPL servicers (up to 15%), to provide equity and quasi-equity investments for co-investments in NPL portfolios (up to 30%) or to award senior debt instruments to co-investment facilities or to Partners to purchase of NPL portfolios. 
  • Asset classes: The framework can apply to specific asset classes or mixed portfolios, including most types of non-performing loans such as; unsecured consumer, retail loans, commercial real estate (CRE), corporate, SME, and leases.
  • Servicing partners: Selected according to their track record so that due diligence procedures can be facilitated smoothly for the transaction phase. 

What is the progress to date?

Evidence of the framework being rolled out is already being noticed, only a few months in. The current pipeline that the EBRD is looking at consists of 15 projects across the region, with a total portfolio GBV of about EUR 20 billion. Half of the pipeline being assessed is in Greece, in line with the country's ambitious target to reduce its non-performing exposures (NPE) by EUR 40bn by the end of 2019 with the rest spread across the SEE (including in Cyprus, Croatia and Bulgaria). The projects in the pipeline include both investments in servicers and in actual NPL portfolios.  

Why is the EBRD investing in NPLs?

The regions covered by the EBRD are burdened with high stocks of NPLs, which reduces resilience to external shocks and increases the systematic risks. The project aims to promote further liquidity in the NPL markets of the region, ultimately fostering resilience and competitiveness. Alongside this financial engagement, the EBRD also invests in policy engagement by leading the NPL initiative, a part of the Vienna Initiative platform.

Nick Tesseyman, EBRD Managing Director, said; “the combination of financial intervention and policy engagement will allow EBRD to address one of the key post-crisis legacy issues in the banking sector”. The framework has been recognised for its dynamism in the few months since it was launched, demonstrating the need for practical involvement by International Financial Institutions in the region.

Eric Cloutier (Email id: eric.cloutier@kpmg.co.uk), Managing Director, KPMG's ECB Office and Deal Advisory, is Senior Advisor to the EBRD on the NPL initiative and able to answer your questions regarding the framework. For more details related to NPL strategies and transactions, please contact Nick Colman (Email id: Nicholas.Colman@KPMG.com), Partner Portfolio Solution Group at KPMG. You can also consult KPMG's European Transaction Dashboard.
 

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