Is Ukraine a new NPL hotspot?
With the Ukrainian government intent on liberalizing the NPL market and the country’s NPL loan volume totalling EUR 19.3 billion, Ukraine has the potential to become another distressed debt industry hotspot, especially if political stability improves.
On 1 July, 2018, 51.05% (a volume of EUR 19.3 billion) of the Ukrainian loan market was comprised of non-performing loans (NPLs).
Source: The National Bank of Ukraine and European Central Bank
The NPL ratio in Ukraine is 10 times greater than the EU’s average NPL ratio of 4.81%. Such a drastic difference makes the Ukrainian NPL market an alluring destination for yield-hungry distressed–debt investors. Note that approximately 70% of Ukrainian NPLs are held by state-owned banks.
Legal framework – growing alignment with international standards
Since 1 February, 2017, the National Bank of Ukraine introduced a new methodology for assessing NPLs, aligning it with international standards, including the IMF’s Financial Soundness Indicators and definitions of “non-performing loans” and “non-performing exposures”. Furthermore, on 3 July, 2018, the Ukrainian parliament adopted a law “On the Resumption of Lending”. This law strengthens the protection of creditors’ rights and removes certain gaps, e.g. it provides that if the mortgagor is insolvent, the mortgage remains in force, arrest over the mortgage does not impede foreclosure, etc. These measures could serve as additional incentives for investors.
Tapping into the market – the “new NPL hotspot”
Two options are available for potential investors: (i) direct acquisition from private banks and (ii) purchase of NPLs at online auctions organized by the Deposit Guarantee Fund of Ukraine (DGF). In the case of direct acquisition, investors may purchase NPLs from banks via (a) an assignment of rights and obligations under the respective NPL, or (b) entering into a factoring agreement with the bank. Under the second option, DGF holds online tender (auction) to sell NPLs of insolvent banks.
PwC input in facilitating deals
However, carrying out the sales process of a designated portfolio can be cumbersome, and might be accompanied by several challenges. Key success drivers identified for such transactions range from solid data preparation, deep understanding of the underlying portfolio’s assets to structured market-proven transaction process.
Building up on the vast experience of being market leader in NPL transactions within CEE, PwC offers a wide range of services to support the sell-side as well as buy-side market participants. By applying our proprietary market intelligence, coupled with modern digital analytical tools, deal certainty can be maximised.
Altogether, this makes Ukrainian NPL market even more attractive investment opportunity, worth looking at.
For more information please contact:
Senior Manager, Head of Transactions Practice, PwC Legal Ukraine
Senior Consultant, Corporate / M&A / Banking and Finance, PwC Ukraine