Rath Ursula | Ebner Martin

CEE: Schoenherr publishes practice guide on non performing loans in Central and Eastern Europe

Throughout the CEE/SEE region, the percentage of non-performing loans (NPLs) to total loan receivables has increased dramatically during the current economic cycle. With its guide on "Non performing loans in Central Europe – disposal / acquisition strategy" Central European law firm Schoenherr presents a practical guideline for those contemplating to sell NPLs as part of their strategy of active-ly managing distressed credits as well as for potential investors in this asset class.

The rapid increase of NPLs combined with increasingly severe banking regulation throughout Europe and the impact of those assets on bank' risk-weighted assets (RWAs) encourages credit institutions in the CEE/SEE region to reconsider their long-term strategies concerning non-core and distressed assets. Under the new Basel III regulations, which will be implemented in the EU by 2013 (subject to transitional provisions), credit institutions have to gradually increase their capital base. In addition, as part of the EU-level agreement on measures to restore confidence in the banking sector, certain European credit institutions are required to establish a buffer, so that their Core Tier 1 capital ratio reaches 9% by the end of June 2012. Moreover, according to recent regulatory initiatives in Austria, certain banking groups will be required to apply Basel III capital standards without any phase in as of 1 January 2013 already. These initiatives also introduce a maximum loan to deposit ratio of 110% for the CEE/SEE subsidiaries of these banks. As a consequence, institutions are currently evaluating a variety of options for improving capital ratios such as reducing RWAs on their balance sheets.

"In light of ever increasing regulatory (capital) pressures concerning flawed banking assets, many regulated lenders may be left with little choice other than more actively managing distressed borrowers/portfolios", says Martin Ebner, Partner at Schoenherr.

"On the other hand, we see increased buy-side demand for distressed credits in a variety of industries and across asset classes, which in turn should allow creditors to consider disposals of credit exposures as part of their distressed asset strategy", Partner Ursula Rath adds.

The NPL Guide combines the firm’s transactional experience with the legal and regulatory expertise of Schoenherr's distressed assets team in nine jurisdictions. Each country contribution touches on the key legal issues relevant to implementing a transaction in the given jurisdiction.

A copy of the primer can be ordered for free or downloaded at Schoenherr’s website: http://www.schoenherr.eu/news-publications/publications/non-performing-loans

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