Work on collection of problem debt in state banks

Work on collection of problem debt in state banks

“The work of collecting problem debt in state-owned banks has always been extremely complicated, and the full-scale invasion of the Russian Federation has caused additional restrictions and difficulties.

However, the bank steadily passed the first year of the war, adapted to the new realities of working in uncertain conditions, setting rather high planned indicators for the settlement of problem debt.

As a result, in 10 months of 2023, the specialized team of the bank ensured the repayment of NPLs in the amount of more than UAH 2 billion, which is a record indicator for the entire history of Ukreximbank’s existence.

The repayment of NPLs resulted in a net profit of almost UAH 1.5 billion. For comparison, during the same pre-war period of 2021, the bank managed to collect problematic debt in the amount of UAH 1.7 billion, and the impact on the bank’s financial result amounted to UAH 403 million,” said Ukreximbank Board Member Dmytro Kaplyuk.

Working with NPL: record NPL repayment amount in the bank’s history in 2023

The most acute problem of banks since the beginning of the Great War is the tendency to increase the volume of problem loans, which is caused by the occupation of territories, the suspension of borrowers’ activities, and the loss of collateral.

Of course, the war also affected the loan portfolio of Ukreximbank. Since the beginning of 2022, the share of problem loans in the Bank has increased by UAH 11 billion.

As of October 1, 2023, the portfolio of problem loans amounted to UAH 137 billion. At the same time, a significant share of problem loans are foreign currency loans issued back in 2007-2008, the volume of the accumulated exchange rate difference in the NPL portfolio is almost UAH 72 billion.

The analysis of problem cases and recovery prospects shows that most of the portfolio’s NPLs have no repayment prospects, and in this connection were written off at the expense of the formed reserve.

So, today, the balance sheet portfolio of problem loans amounts to almost UAH 38 billion, 20% of which is the debt of debtors in bankruptcy procedures, and in the total NPL portfolio this figure reaches more than 60%.

Improvement of the legislative framework to protect the interests of creditors, in particular state banks

The settlement of problematic debts of such debtors is a rather complicated and long-term process, since the unscrupulous actions of debtors and existing shortcomings in the legislation lead to the delay of bankruptcy procedures and enable debtors to avoid responsibility.

The ineffectiveness of the current bankruptcy procedure, stipulated by the Bankruptcy Code of Ukraine, leads to the fact that the average term of debt collection in bankruptcy procedures is approximately 7 years, and the recovery level (based on the Bank’s historical data) is no more than 60%.

“Considering this, Ukreximbank is actively working to introduce changes to Ukrainian legislation, in particular, to the Bankruptcy Code of Ukraine.

Thus, during 2023, the bank discussed existing problems in the legislation within the professional community of FinClub Ukraine, sent relevant proposals to the National Bank of Ukraine, the Cabinet of Ministers of Ukraine, the Ministry of Justice of Ukraine, etc.

At the initiative of the Association of Ukrainian Banks, a round table was held on the topic “Weaknesses of the bankruptcy procedure in Ukraine and their impact on the level of NPLs in the banking system”, where Ukreximbank proposed 12 changes to the Bankruptcy Code of Ukraine, Dmytro Kaplyuk noted.

Not thanks to, but contrary to: challenges with which the Bank coped

A vivid example of the ineffective current bankruptcy procedure is the case of “Ice Terminal” LLC. The debtor’s collateral property was sold at an auction at a price 10 times lower than the market value of the property.

Debt collection work in this case was carried out by the bank for more than 10 years. In order to strengthen the bank’s legal position and challenge the results of auctions where the property was sold at an undervalued price, the bank engaged an accredited legal company.

This gave its result – the 2019 auction in the bankruptcy case of Ice Terminal LLC was declared invalid, and a new auction was held in June 2023, as a result of which the mortgaged property was sold at a price 12 times higher – UAH 404 million .

Another case in which the Bank ensured repayment of NPL debt in the amount of over UAH 200 million is the bankruptcy of Ukrpidshipnyk PrJSC.

Since 2021, the liquidator has been hindering the sale of the mortgaged property on the terms agreed by the bank. In 2023, the courts of the first and appellate instances supported the legal position of the state bank and determined the conditions for the sale of mortgaged property.

As a result, the mortgaged property was sold at the first auction and with a price increase of more than 40%.

Almost UAH 20 billion of the balance sheet NPL portfolio are restructured loans and debts of borrowers whose businesses were affected by the war. With such debtors, the bank chose a strategy of voluntary debt settlement, which does not put pressure on the business.

The terms of the voluntary settlement of debts were used by large companies that were systemically important for the economy of Ukraine and were affected by the war, in particular, companies serving the country’s defense industry, agricultural producers and grain traders.

This made it possible to preserve the activity of borrowers, which is extremely important for supporting the economy of Ukraine, and to prevent overdue debts to the Bank.

That is why the Bank went to meet one of the largest borrowers, which suffered from a large-scale invasion and plans to complete the debt restructuring of Nibulon JV LLC by the end of 2023. The bank has done a lot of work with the debtor on agreeing terms and structuring the restructuring agreement.

Restructurings carried out in a timely manner contributed to the recovery of debt servicing by debtors, the prevention of deterioration of the quality of the loan portfolio and the improvement of the Bank’s financial result (according to the Bank’s estimates, the amount of losses associated with failure to carry out restructurings would have amounted to UAH 5 billion more).

Starting from 2021, state banks started using a new tool for settling NPL debt – debt sale. Ukreximbank, one of the first among state-owned banks, held several English and Dutch auctions.

However, in 2023, due to the reduction of investments in the country’s economy, low demand for “bad” assets, and the uncertainty of further hostilities on the territory of Ukraine, the bank changed its vector in dealing with problem debt.

Thus, the Bank took active actions in the forced collection of problem debt in executive proceedings and bankruptcy procedures of debtors.

As a result, thanks to the active actions of the Bank, significant results were achieved in debt enforcement procedures, which resulted in more than UAH 600 million in repayments.

“The Code of Ukraine on Bankruptcy Procedures currently does not protect the interests of creditors, but enables unscrupulous debtors to use bankruptcy as a tool to avoid their obligations to pay debts to banks.

Unfortunately, in state-owned banks, these are quite frequent cases when debtors avoid responsibility, causing losses to the state. For example, due to the loan of Niko car holding, legal proceedings for debt collection in the amount of more than UAH 800 million have been going on since 2021.

In order not to pay debts to the state bank, the debtor resorts to bankruptcies under agreements with signs of fictitiousness, delays legal proceedings. That is why changes to the Code of Ukraine on bankruptcy procedures are now extremely important,” concluded Ukreximbank Board Member Dmytro Kaplyuk.

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