In the end of May 2017, both the Council of the European Union (the “Council”) and the International Monetary Fund (the “IMF”) issued recommendations encouraging non-performing loan (“NPL”) sales in Bulgaria. The recommendations follow the successful completion of the first ever sale of a corporate real estate secured NPL portfolio by the largest bank in the country, part of UniCredit’s group.
In its recommendation on Bulgaria’s National Reform Programme, the Council stated that Bulgaria should take steps to reduce its relatively high level of non-performing corporate exposure. Such steps include: (i) accelerating insolvency reform and focusing on restructuring out-of-court proceedings; (ii) improving the supervision of the Bulgarian National Bank; and (iii) improving conditions for the secondary market of non-performing loans.
According to the IMF, Bulgaria holds a relatively high percentage of non-performing loans – 13.7% as of June 2016, compared to 5.5% at EU level. This high percentage will significantly affect the local banking institutions’ implementation of IFRS 9 on the determination of loan loss provisions. Similar to the Council, the IMF’s executive board identified and suggested specific practices to address this issue, inter alia, better valuation of collaterals, better disclosure practices, higher write-off of NPLs, etc. Further, the IMF urged the Bulgarian National Bank to continue its co-operation with other governmental bodies, the banking industry, and investors to improve the market for NPLs.
The above conclusions come at a time when Bulgaria’s outlook has been revised by Fitch to positive, and the IDR was affirmed at BBB. This, along with the fact that the country has a functioning government, should significantly encourage NPL sales.