COVID-19 CEE banking sector impact survey First symptoms of the coronavirus outbreak - September 2020 - Deloitte
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COVID-19 CEE banking sector impact survey First symptoms of the coronavirus outbreak September 2020
Contents
01 Introduction 03 List of abbreviations 32
Foreword 03
Highlights 04
Overview of Central and 04 Contact us 33
Eastern European banking sector 08
COVID-19 measures across Europe 12
05
02 Survey results
Economic recovery 15
Measures by local governments
and national banks 16
Loan dynamics 19
Non-performing loans 23
NPL transactions 25
Restructuring and workout 30
The icon indicates insights based on responses
received from investors participated in the survey.
2
Introduction
Foreword
The following pages capture the views of 69 Banks still need to run their scenarios and stress
banks’ chief risk officers and heads of workout test models in order to assess the possible impact
departments across twelve countries in the and outcomes of COVID-19. Furthermore, the loan
Central and Eastern European region. The survey repayment moratorium introduced in many
was conducted between June and August 2020 countries over the Central and Eastern European
with the vast majority of the answers collected region can temporarily mask the actual damage
based on a questionnaire but our team also that restrictions can cause to the economy.
conducted interviews with selected respondents.
However, the survey report provides a valuable
Our team has also asked the opinion of some of insight about banks’ expectations regarding the real
the representatives of investment firms, debt impact of the pandemic. Among many other
purchase and collection companies as we expect important and exciting topics the survey results
that the market volatility and the current shed a light on the banks’ views on economic
challenging times can be a catalyst for future recovery, loan portfolio evolution, asset quality, NPL
growth of the NPL market activity. disposal activity, as well as restructuring and
workout priorities.
Being several months into an economic downturn
brought by the emergence of the COVID-19 We thank the respondents for taking the time to
pandemic, all market players need to face participate, and we hope you find the survey results
unprecedented challenges and this makes no informative and insightful.
exception to the banking industry either. Banks
Best regards,
need to face the possible acceleration of new
Dear Reader, defaults, thus an increased level of loan losses as
well as a decline in interest, fee and commission
It is a great pleasure to introduce you our income due to the contraction of economic
survey report summarising insights on the activity, not to mention the already experienced
impact of the COVID-19 pandemic on the and potential future operational concerns.
banking sector, with a special focus on the Nevertheless, time since the COVID-19 outbreak Albert Márton
current and future development of loan and the measures implemented to support the
demand, non-performing loans and related economy is relatively short to draw robust Partner, Regional Head of
transaction activity, restructuring and workout conclusions in terms of the NPL formation in the Portfolio Lead Advisory Services
measures. coming years. Financial Advisory
3
Introduction
Highlights
Banks have significantly improved their Ou r te a m c o n d u cte d
asset quality since the global financial th e s u r v ey a m o n g C ROs
crisis of 2008-09, built up larger capital a n d h e a d s o f w o r ko u t
buffers and strengthened their d e p a r tm ents w h o
liquidity positions, therefore entering p rov ide d th e i r v i ews
the economic slowdown in a better a n d exp e c ta tion s i n
state than they did at the time of the re l a tion to th e i m p a ct
previous financial crisis. o f COV ID - 19 o n th e
The combination of economic upturn over the b a n ki n g s e c to r c ov ering
past years, the supervisory and political fi v e m a i n a rea s . So m e
attention as well banks’ commitment to tackle
o f th e f i n d ings m a y b e
non-performing assets contributed to the
considerable decrease of NPL volumes over i n l i n e w i th i n tu i ti on s,
the past years. w h i le o th e r s m i g ht b e
These challenging years also required banks s u r p r ising.
to develop their NPL management and best
practices as well as to tackle the build-up of
non-performing exposures. The NPL
strategies implemented prior to COVID-19
might need to be adjusted now, potentially
affecting the servicer universe as well as the
buyers’ market.
4
Introduction |Highlights
A U-shaped economic Measures by local authorities New loan disbursements
recovery is expected were implemented in time are to decrease
A prolonged economic recovery is expected The reception of the implemented fiscal and Unsurprisingly, new loan disbursements are expected
over the next 12 months, with the majority of the monetary stimulus package is rather miscellaneous; to slightly or significantly decrease in 2020 compared to
respondents expecting a U-shaped (39.1%) or L-shaped however, the participants were more satisfied with their 2019, whilst the expectations are more optimistic for the
economic recovery (21.7%). The view of respondents on national banks’ measures (nearly half of the year 2021.
the application of moratorium is positive overall, with respondents) than the acts of local governments, with
75% of the respondents considering it as an effective more than 40% of our respondents expressing that the
measure to maintain financial stability. measures implemented by the local government are not
sufficient to safeguard the economy.
5
Introduction |Highlights
Tightening credit standards both Who experienced the most Asset quality is expected to
in retail and corporate segment significant drop? deteriorate somewhat
Credit standards of loans for both households and Based on the responses, sectors that were hit hard The asset quality is not expected to deteriorate
non-financial corporations are anticipated to tighten by the pandemic situation such as hospitality and considerably over the next 12 months as almost half of
somewhat. This can be attributable to banks’ transport and storage experienced the most the respondents anticipate the retail NPL ratio to increase
expectations in relation to the deterioration of economic significant drop in demand for loans over the past 3 by 0-3% points, whilst two-thirds expect the corporate NPL
outlook as well as the increased credit risk. Having the months. ratio to rise at the same pace. It is anticipated that the
experiences from the global financial crisis of 2008-09, inflow of non-performing loans will come mainly from
banks tend to also have a lower risk tolerance. hospitality, transport and storage as well as real estate &
construction portfolios.
In contrast, the investors seem to be more pessimistic
regarding the development of the asset quality, with nearly
half of them expecting the retail NPL ratio to increase by 3-5%
points, whilst one-third anticipate the corporate NPL ratio to
deteriorate at the same pace over the next 12 months. 6
Introduction |Highlights
NPL transactions market is likely In-house vs. outsourcing?
Debt restructuring is on the rise
to revive in the short term
Almost a quarter of the respondents plan to dispose of Nearly one-third of respondents think that 5-10% of The majority of respondents indicated they have
non-performing loan portfolios over the next 6 months, debtors in the retail segment with liquidity sufficient human resources to handle the increased
whilst more than one-third do not plan any portfolio sales difficulties will require restructuring over the need from debtors for restructuring (64%) and the
in the upcoming period. Retail unsecured portfolios will next 12 months. One-third expect that even more, potentially increased amount of workout cases (55%) in-
dominate the NPL transactions market, with more than 10-20% of households will require restructuring. house. Banks tend to allocate resources internally from
one-third of banks expecting to dispose of non-performing However, the majority of participants (38%) think departments (e.g. lending) experiencing less workload
loans in the largest amount in the aforementioned asset that maximum 5% of retail debtors will require
recently and to some extent also standardise processes.
class. A fifth also consider the disposal of corporate single restructuring due to fundamental financial
However, a fifth of participants indicated that in-house
cases. Besides this, nearly half of the respondents expect difficulties.
resources are not sufficient to handle the extra workload
the disposal of non-performing single tickets to
increase over the next 12 months. in case of workout. Nearly half of the banks indicated
they are ready to outsource workout activities to
external servicers.
At the time of writing, the majority of investors stated
intentions to continue buying despite the pandemic
situation but selecting deals more cautiously.
Investors felt the transaction activity to come to a halt in
the CEE region, with some ongoing deals put on hold. The
majority of respondents expect the NPL market activity
to revive over the next 12 months, with some deals
already in the last quarter of the year. This expectation is
visible on the loan sales market with some banks already
indicating that postponed deals will proceed and even
new deals will start in 2020.
Half of the investors expect banks to dispose of
corporate unsecured assets in the largest amount.
Expectations for the corporate segment do not differ
materially from those for the households.
7
Introduction
Overview of the Central and Eastern European banking sector
After the global financial crisis of 2008-09, the banking the monetary and financial authorities to handle.
A s Fi g u re 1 . s h ows, th e
system had to face the rapidly increasing NPL amounts
In 2015, the European Central Bank and national banks a v e rage N PL ra t i o of t h e
and operate under heterogeneous, distinct monetary
outside of the Eurozone announced several schemes and
and fiscal measures introduced by local governments
measures to support the recovery and contraction of C E E reg i on h a s d ecrea sed
and national banks. Consequently, the first seven years
underperforming assets on the banks’ balance sheets by n ea r l y 2 % p oi n t s ov er
of the crisis resulted in the accumulation of a significant
across the European Union, which led to a successfully t h e p a st t w o y ea r s a n d
amount of distressed assets across Europe emerging as
decreasing trend in non-performing loan volumes.
one of the main challenges in the upcoming years for th e N PL v o l ume s w e re s ti ll
Figure 1. NPL volumes and ratios (Q1 2020)
s h ow ing th e s i g n s o f
€ 7.0 bn 14.0%
re c overy w i th d e c reasin g
a m o u n ts c o m p are d to
€ 6.0 bn 12.0%
p rev ious y e a r s.
€ 5.0 bn 10.0%
T h i s p ro g ress e n a b l ed
€ 4.0 bn 8.0%
b a n ks to b e re s ilient
€ 3.0 bn * 6.0% agai nst s h o c ks an d s ev ere
5.0%
€ 2.0 bn
3.3%
* 4.0% p o te n ti al l o s se s i n a n
€ 1.0 bn 2.0% u p c o min g e c o n o mic
€ 0.0 bn 0.0%
d ow n tu r n .
PL HU CZ HR RO SI EE LT LV RS AL BH XK
NPL amount '18 NPL amount '20 Q1 NPL ratio '18
NPL ratio '20 Q1 Avg. NPL ratio '18 Avg. NPL ratio '20 Q1
Source: EBA, NBS, BoA, CBK and CBBH * By CEE countries the report refers only to countries participated in the survey. 8
Introduction |Overview of the Central and Eastern European banking sector
However, similarly to the global financial crisis of 2008- The short term effects of COVID-19 are not yet taking mask the economic damage incurred during the
09, another unexpected and unprecedented event of the place in the European banking market in terms of the lockdown.
COVID-19 pandemic crisis hit the global economy in the potential increase of distressed asset amounts, also
However, compared to previous crises, the banking
first quarter of 2020, which will most probably have an mainly due to the measures implemented by local
system in the CEE region is facing the pandemic with a
effect on the asset quality of the banks in a longer term. governments and national banks to safeguard the
larger capital buffer, strengthened liquidity positions and
It is worth mentioning that the pandemic crisis has a economies such as moratorium on loans payments.
relatively low NPL ratios in case of the majority of the
different impact on the financial sector compared to the Nevertheless, there is still some uncertainty from 2021
banking sectors.
financial crisis of 2008-09, as the signs of slowdown were onwards regarding the payment behaviour of borrowers
visible and experienced more in the real economy and when the moratorium relief stops as it can temporarily
not directly in the financial sector.
Figure 2. Coverage ratios of NPLs (Q1 2020)
Prov isio nin g p o l i cie s c a n d i f f er 140.0%
a c ro ss th e c o u n tr ies a n d 120.0%
b a n ki n g g ro u p s, b u t i n ov e rall 100.0%
t h e cov era ge ra t i o of n on - 80.0%
p er for m in g l oa n s a n d 60.0% 62.3%
a d v a n ces were 1 6 .3 % poi n t s 40.0% 46.0%
h i g h er i n t h e C E E reg i on 20.0%
c om p a red t o t h e E U a v era ge i n 0.0%
Q1 2 0 2 0 , w h i c h i n d i c a t e s t h a t m o s t PL HU CZ HR RO SI EE LT LV RS AL BH XK
banks already built up a sufficient
a m o u n t o f r i s k p r ov i s i o n s f o r N P L s . Coverage ratios '20 Q1 CEE avg. '20 Q1 EU avg. '20 Q1
Source: EBA, NBS, BoA, CBK and CBBH
9
Introduction |Overview of the Central and Eastern European banking sector
The significant decrease in NPL volumes over the recent exposure amount). Out of the 13 CEE countries, the especially the SME segment, constitute a higher portion in
years – among others - allowed banks to strengthen Baltics are far above the CEE and the EU average with an the banking system.
their capital positions and fulfil their role in funding the average CET1 ratio of 24.9%.
Moratorium on loans and other measures could also
real economy. In Q1 2020, the Common Equity Tier 1
The retail segment is the most dominant sector among restrain the slowdown in the lending activities.
(CET1) ratios of Central and Eastern European banks
CEE banks thus the lending activity may decrease at a
stood at 19.1%, which is 4.5% points higher than the
slower pace compared to those countries where
European average and well above the regulatory
corporate loans,
minimum of 4.5% (set as a per cent of total risk
Figure 3. CET1 ratios (Q1 2020)
A s s e t q u a l ity a n d a d e q u a te
30.0%
c a p ita l a m o u n ts a re a key
c o n c er n f o r b an ks to ov e rcome 25.0%
th e e c o n o mic d ow n tu r n . 20.0%
19.1%
A c c o rdin g to E BA , E u ro p ean
15.0% 14.6%
b a n ks o n a v e rage h a v e s h i fte d
th e i r l o a n p o r tf o l io s tr u c tu re to 10.0%
th e r i s kie r s e g me nts a s th e 5.0%
exp o s u res i n th e SM E a n d re ta il
0.0%
u n s e cu red s e g men ts h a v e b e e n PL HU CZ HR RO SI EE LT LV RS AL BH XK
i n c re asing ov e r th e p a s t f ew
y e a r s. CET1 ratios '20 Q1 CEE avg. '20 Q1 EU avg. '20 Q1
Source: EBA, NBS, BoA, CBK and CBBH
10Introduction |Overview of the Central and Eastern European banking sector
Figure 4. Loan composition (Q1 2020)
100%
A s p re s e nte d i n th e s u r vey re p o r t,
b a n k s a re m ore p osi t i ve a b ou t
90%
t h e l en d i ng a ct i v it y for 2 0 2 1
80% com p a red t o 2 0 2 0 a n d b e l ieve
th a t e c o n o mies w i l l re q u ire
70% a d d i tio nal l e n d in g to s ti m ulate th e
re al e c o n o my an d to re c over f ro m
60%
th e p a n d e mic s i tu a tion .
50%
40%
30%
20%
10%
0%
PL HU CZ HR RO SI EE LT LV RS AL BH XK
Other HH HH mortgages Other NFC SME CRE Non-HH
Source: EBA, NBS, BoA, CBK and CBBH
11Introduction
COVID-19 measures across Europe
In January 2020, coronavirus emerged in In the framework of the survey, our aim was to
understand the general opinion of banks on government
the European countries and the pandemic and national bank measures as the number and the
situation required an immediate and firm characteristics of the measures could differ significantly
response from local governments and country by country.
national banks to mitigate the social and In our survey, we also investigated whether banks
economic impact of the outbreak. The considered the responses of the local authorities to be
carried out in time as timing was considered as a crucial
measures in the first place were health-
factor by epidemiologists to stop the spread of the
centric with the priority of protection of infection. One of the most impactful response from
health and to slow down the spread of the national banks to protect the economies and support
borrowers was the introduction of moratorium on loan
virus.
payments. As a result, questions on the effectiveness of
This resulted in a wide range of measures and policy the measure to safeguard the economy were also raised
responses from school closing and travel restrictions to among banks.
the introduction of economy protection measures such
One of the first countries to implement measures
as the moratorium on loan payments, tax reliefs, job
among the analysed countries was Poland.
guarantees, state guarantees for bank loans and other
types of state aid to the real economy as well as
temporary relief on capital and liquidity buffer
requirements for banks. European regulatory
authorities like the EBA, ESMA and ECB have also
released multiple guidelines in order to mitigate the
impact of COVID-19 on the economy and to support
banks in finding their way in this complex and
unprecedented situation.
12Introduction |COVID-19 measures across Europe
Figure 5. Government Response Stringency Index as of April 2020 (0 to 100, 100 = strictest)
Figure 5. presents the stringency of containment
measures based on the Oxford COVID-19 Government
Response Tracker in April, which was considered one of
the peaks of the pandemic. 57.41
96.30 65.74
The OxCGRT provides a systematic analysis of the
measures implemented by the governments across 75.00
countries and time but should not be interpreted as a
measure of effectiveness of the government responses. 92.59 75.00
According to EBA’s Thematic Note, however, the indices
might be viewed as an indication of the magnitude and
length the countries could be affected by the pandemic 76.85
crisis economically. 90.74
I n l i n e w i th o u r s u r v ey re s u lts, c o u n tr ies w i th 77.78
h i g h er s tr i n ge ncy i n d ice s l i ke Ser b i a , C roa t ia
or K osov o con si d ered t h e g ov er n ment 89.81
m e a su res l e s s e f f e ctive c o m p ared to th e 83.33
ge n e ral s e n time nt o f th e C E E a n d ov e rall t h ese
cou n t r i es a re ex p ect i ng a l on g er econ om ic 89.81 87.04
re cov er y. Source: OxCGRT
13Survey results © 2020 Deloitte Hungary 14
Survey results
Economic recovery
A prolonged economic recovery is expected over the next 12 months
The outbreak of the coronavirus in Europe and the rest of C E E b a n ks w e re ra th e r p e s s imisti c Nearly a fifth of the respondents expect a faster (V-
the world is the most severe negative shock economies shaped) recovery, among these banks the
have experienced since the global financial crisis of 2008-
re g a rd ing th e e c o n o mic re c over y Hungarians and Albanians were the most
09. However, this crisis has affected not only the i n th e re g i on , a s 3 9 .1 % of t h e optimistic.
economies but also directly people’s health and daily lives, resp on d en ts ex p ect a l on g er
resulting in more serious and deeper social and economic The investors expressed a slightly different view on
impact than the world previously had to face. GDP is
( U- sh a p ed ) recov ery for t h e the economic recovery, with half of the respondents
expecting the economic recovery to be W-shaped.
expected to decline significantly in EU economies and u p com i n g m on t h s , wh i lst a f i f th
globally as well, however it is still too early to predict and exp e c t a n L - s ha ped re c ove ry.
adequately quantify the real economic and social impact
of the pandemic.
18.8% 18.8% 21.7% 39.1%
1.4%
Z V W L U
Source: Deloitte analysis
15Survey results
Measures implemented by local governments and national banks
The reception of the implemented fiscal and monetary stimulus package is rather miscellaneous
The magnitude of the economic downturn is mainly In general, the respondents were more satisfied with the
determined by the pace and expediency of the measures implemented by the national banks as nearly
measures implemented by local governments, as half of the banks agreed that those were sufficient to
limiting the contagion and preventing the emergence of protect the economy, whilst in case of the acts of local
the second wave of the virus could have a massive governments less than one-third responded positively.
impact on the economic recovery.
Figure 6. The current measures implemented by these institutions are sufficient to safeguard the
economy from the pandemic crisis.
Strongly Agree
1.4% 5.8%
Agree
29.0% 39.1%
Neutral 34.8%
29.0%
Disagree
31.9% 18.8%
Strongly Disagree
8.7% 1.4%
Government National bank
Source: Deloitte analysis
16Survey results | Measures implemented by local governments and national banks
Countries in the south part of the region such as As presented on Figures 7-8., these countries also
Albania, Bosnia, and Kosovo expressed a strong posted a higher stringency index than the CEE average.
disagreement regarding the effectiveness of the In contrast, countries like Poland, Croatia, Romania and
government measures. the Baltic states felt the measures more efficient than
the CEE average.
Figure 7. The current measures implemented by the local Figure 8. The current measures implemented by the national
government are sufficient to safeguard the economy from the bank are sufficient to safeguard the economy from the
pandemic crisis. pandemic crisis.
67% 17% 17% 17% 33% 50%
50% 33% 17% 50% 33% 17%
25% 75% 50% 50%
50% 50% 33% 17% 33% 17%
14% 43% 43% Baltics 57% 43%
67% 33% 33% 67%
14% 43% 43% 57% 43%
50% 50% 75% 25%
10% 50% 30% 10% 20% 40% 40%
13% 25% 50% 13% 13% 25% 38% 25%
13% 25% 63% 13% 13% 38% 38%
Strongly Disagree Disagree Neutral Agree Strongly Agree
Source: Deloitte analysis
17Survey results | Measures implemented by local governments and national banks
Timing of the measures was considered as a key factor
to stop the spread of the virus and to mitigate the The majority of the
negative economic effects, which was in general
positively assessed among the banks. The majority of
respondents (62.3%) agreed
the respondents (62.3%) agreed that the local that the local authorities
authorities reacted in time to COVID-19. The only
exception is Bosnia where two-thirds stated that the
reacted
governmental and institutional reactions were late. in time to COVID-19.
One of the most impactful measures to protect the
borrowers and the financial system was the introduction
of moratorium on loans. It was crucial for the local
authorities to ensure that temporary liquidity difficulties
do not lead to long-lasting and deepening economic
problems. The temporary payment facilitation measures
were designed to protect households and corporate Banks were positive in general
customers, however the specifics of moratoria can differ
by countries. Besides the characteristics of the as the vast majority (75.3%)
moratoria, banks were positive in general as the vast
majority (75.3%) considered the measure as an effective
considered the moratorium
tool to maintain financial stability. on loans as an effective tool
to maintain financial stability.
18Survey results
Loan dynamics
New loan disbursements | New loan disbursements can rebound in 2021 also attributable to regulatory measures
aiming to sustain the lending activity of banks
In recent years, banks have increased their exposures in The vast majority of respondents (78.2%) anticipate that In contrast to the expectations for 2020, in 2021 only
the riskier segments (e.g. SMEs and consumer credit) new loan disbursements in 2020 are going to decrease 43.4% of the banks expect decrease in loan
mainly because of searching for yield in the low interest which is in line with the expectations of a U-shaped and disbursements, whilst one-third expect a slight or
rate environment. Furthermore, due to the positive L-shaped economic recovery. Bosnia has the most significant increase.
macroeconomic conditions, the loan demand has also pessimistic outlook with just over 80% expecting a
significantly increased in the past years. However, these significant decrease.
conditions were negatively affected by the pandemic
crisis. The uncertainty around the severity of the crisis,
the length of the recession and measures like Figure 9. I expect that the level of new loan disbursements compared to the previous year will:
moratorium increased the ambiguity in case of the
demand for new loans in 2020 and 2021.
1.4% Significantly increase 5.8%
11.6% Slightly increase 29.0%
8.7% Remain unchanged 21.7%
T h e B a l ti c re g io n
Slightly decrease 39.1%
i n d i cated th e m o s t 42.0%
c o n f id ent exp e ctatio ns
36.2% Significantly decrease 4.3%
o n th e d i s b ur semen ts o f
n ew l o a n s. Loan disbursement 2020 Loan disbursement 2021
Source: Deloitte analysis
19Survey results
Loan dynamics
Credit standards | Credit standards of loans for both households and non-financial corporations are expected to tighten
somewhat mainly due to the deterioration of economic outlook as well as the elevated credit risk
There is no significant difference in the
Figure 10. Credit standards of loans for non-financial corporations and households in my bank due
change of credit standards between the to the COVID-19 crises are expected to:
retail and corporate segments, however
almost 60% of the banks forecast that
credit standards of lending in both
segments will tighten somewhat and c. Ease somewhat
1.4% 2.9%
30% of the respondents expect the credit
standards to remain unchanged. Remain unchanged
According to EBA, credit standards were 29.0% 29.0%
already tightening in the first quarter of
2020, however such tightening was less Tighten somewhat
58.0%
58.0%
severe compared to that during the
sovereign debt crisis of 2008-2009.
Tighten considerably
Needless to say that banks differentiate 8.7% 5.8%
between sectors and borrower groups
with regards to the amendment of credit n/a
2.9% 4.3%
standards by taking into account their
Non-financial corporations Households
exposure to the COVID-19 pandemic. Source: Deloitte analysis
20Survey results
Loan dynamics
Demand for new loans | The vast majority of the banking sectors reported declining loan demand in Q2 2020
D e m a n d for n ew l oa n s i n Q2 2020
Figure 11. Over the past 3 months, demand for new loans
d e crea sed a c c o rd ing to m o re th a n
7 0 % o f th e re s p on de nts m a i n ly 7.2%
d u e to th e p a n d e mic s i tu a tion a s
8.7%
th e v i r u s h a d th e m o s t s i g nifican t
i m p act o n th e re al e c o n o mic
s e c to r. E s p e cially th e h o s p itality
i n d u str y a s h o te l s, re s ta u ran ts a n d 39.1%
Significantly decreased
11.6%
b a r s n e e d e d to c l o se d ow n th e i r
o p e ra tion s f o r s ev eral m o n th s Slightly decreased
ac ro ss E u ro p e .
Remain unchanged
Remained unchanged
However, 15.9% of the banks experienced a moderate or
significant increase in loan demand. More than half Slightly increased
(57.2%) of the banks reported increase in demand in
Romania as the energy and the real estate sectors have Significantly increased
drawn down significant financing. 33.3%
Besides the uncertainty, lending is likely to resume after
the end of the lockdown period as a lending stimulus Source: Deloitte analysis
potentially will be required to restart the economies.
21Survey results
Loan dynamics
Loan demand in the corporate segment | Sectors that were hit hard by the pandemic situation
experienced the most significant drop in loan demand
Especially those sectors and corporates were influenced Answers received from the banks are in line with the
by the pandemic, which are related to tourism and above, since the majority of respondents felt that
hospitality, such as travel agencies and accommodation, loan demand decreased most significantly in the
as well as food and beverage services. This comes as no hospitality sector.
surprise, since governments had to maintain the social
distance to hinder the spread of the coronavirus. On the However, there are several other industries such as real
other hand, telecommunication and IT services as well estate and construction, transport and storage or
as e-commerce are the least affected subsectors as manufacturing which were mentioned among the
these do not require personal contact. sectors that posted a drop in loan demand.
Figure 12. Over the past 3 months, demand for loans to non-financial corporations changed
significantly in the following sectors
1.9% Agriculture 11.5%
20.0% Hospitality 6.3%
Decreased-
14.8% Manufacturing 6.3%
pedding
16.8% RE & Constr. 6.3% Decreased
17.4% Transport and storage 8.3% Increased
Wholesale and retail
11.0% 17.7%
trade
7.1% Other 14.6%
11.0% n/a 29.2%
22
Source: Deloitte analysisSurvey results
Non-performing loans
Asset quality | Asset quality is not expected to deteriorate considerably over the next 12 months based on responses
As the emergence of COVID-19 resulted in deteriorating As the majority of banks are aware of this, they are In contrast, investors expect higher growth in NPLs with half
macroeconomic conditions, the new defaults are likely to running and analysing stress test models with multiple of the respondents expecting the retail NPL ratio to increase
by 3-5% points over the next 12 months, whilst one-third of
increase in the upcoming period. However, there is a high scenarios in order to assess the possible impact of
the respondents expect the corporate NPL ratio to increase
level of uncertainty with respect to the loan repayment COVID-19 and the moratoria measures implemented. by 5-7% points. It is noteworthy that nearly two-thirds
behaviour and debt service capacity of borrowers from For prudential reasons, banks are likely to book expect the corporate NPL ratio to rise by
2021 onwards when the moratorium relief ceases in most additional provisions to prepare for the end of the 5-7% points over the next 24 months.
of the countries. The moratorium could to a certain extent moratorium.
mask the real economic damage incurred during the
lockdown.
Figure 13. Over the next 12/24 months, NPL ratio in the retail/corporate segment is going
to increase by:
A s F i g u r e 1 3 . s u g g e s t s , t h e re i s n o Retail 24M Retail 12M Corporate 12M Corporate 24M
s i g n i f i c a n t d i f f e re n c e i n t h e r e s p o n d e n t s ’
47.8% 44.9%
ex p e c t a t i o n s f o r t h e d ev e l o p m e n t o f N P L 0-3 p.p.
49.3% 65.2%
ra t i o s i n t h e re t a i l a n d c o r p o ra t e 29.0% 33.3%
segments. Almost half of the banks 3-5 p.p.
31.9% 20.3%
ex p e c t t h e r e t a i l N P L r a t i o t o i n c r e a s e by 11.6% 8.7%
0-3% points, whilst two -thirds anticipate 5-7 p.p.
7.2% 7.2%
the corporate NPL ratio to rise at the 4.3% 2.9%
s a m e p a c e . A f ew b a n k s i n P o l a n d , 7-10 p.p.
1.4% 2.9%
R o m a n i a , B o s n i a a n d C r o a t i a ex p e c t t h e 1.4% 2.9%
Above 10 p.p.
c o r p o r a t e N P L r a t i o t o i n c r e a s e a b ov e 7 % 1.4% 1.4%
points in the longer term. 5.8% 7.2%
n/a
8.7% 2.9%
Source: Deloitte analysis 23Survey results | Non-performing loans | Asset quality
I expect that the increase of NPL ratio
in the corporate segment will be mainly
driven by the following industries:
Unsurprisingly, it is
anticipated that the
inflow of new non-
performing loans will be
driven by the hospitality,
transport and storage as Hospitality
well as the real estate
and construction 24 %
sectors, which are the Transport and storage
most affected by the
coronavirus.
23.5 %
Real estate and construction
17.9 %
Manufacturing
14.5 %
Wholesale and retail trade
12.8 %
Source: Deloitte analysis 24Survey results
NPL transactions
Impact of COVID-19 on transaction activity | Almost a quarter of respondents plan to dispose of non-performing loans
over the next 6 months, whilst more than one-third do not plan any portfolio sales
Portfolio disposals played a significant Figure 14. What impact did COVID-19 have on the bank's already ongoing or
role in banks’ deleveraging activity in the contemplated disposal of non-performing loan portfolios or single tickets?
CEE region over the past years evidenced
by the material volume of NPLs traded. No impact
44.9%
As large NPL portfolios have been gradually diminishing
Not relevant
and many banking sectors achieved a sustainable level 26.1%
of NPLs, COVID-19 did not have a significant impact on
the NPL market activity.
Postponed
21.7%
Tra n sa ct i on s were m a i n ly Withdrawn by investors
4.3%
post p on ed i n Pol a n d, wh i c h h a s
o n e o f th e m o s t v i b ran t l oa n sa l es
Other
m a r ket s i n t h e C E E reg i on a s w e l l 1.4%
a s i n C ro a ti a a n d B o s n i a w h e re
N PL ra ti o s a re s ti l l re l ati vely h i g h . n/a
1.4%
Source: Deloitte analysis
25Survey results |NPL transactions | Impact of COVID-19 on transaction activity
In general, more than one-third of the Figure 15. I expect to dispose of non-performing loan
portfolios earliest in the next:
respondents do not plan to commence
NPL disposals in the upcoming period,
Do not plan any 34.8%
whilst more than 40% would sell their
NPLs within a year, of which a quarter 6 months 24.6%
within 6 months. All respondents from 12 months 18.8%
Bosnia stated an intention to sell NPL 18 months 10.1%
portfolios at least within 24 months, whilst
24 months
the vast majority of the banks in Romania 5.8%
do not plan any transactions in the near 36 months 2.9%
future. This is among others due to n/a 2.9%
multiple changes in legislation, including
the deductibility of losses realised on Source: Deloitte analysis
portfolio transactions.
Majority of our respondents stated intentions to continue buying despite the pandemic situation but selecting deals more cautiously,
whilst only a few investors chose to wait and observe or invest opportunistically. However, investors felt the transaction activity to come to
a halt, with some ongoing deals put on hold. The majority of respondents expect the NPL market activity to increase considerably only in
the next 12 months, with some deals to come already in the last quarter of the year. Some investors also expect the secondary
market transactions to accelerate in the coming months.
26Survey results
NPL transactions
Asset classes to be sold | Retail unsecured portfolios will dominate the NPL transactions according to banks.
On the other hand, investors expect banks to dispose of corporate unsecured assets in the largest amount.
More than one-third of banks stated intentions to Given the limited amount of large corporate In contrast, half of the respondents expect banks to dispose of
focus on selling retail unsecured portfolios in the portfolios in most banking sectors in the CEE region, corporate unsecured assets in the largest amount. Most of the
respondents also expect the pricing of assets to decrease
largest amount. This could be attributable to the it comes as no surprise that a fifth plan to dispose of
somewhat compared to the pricing of assets pre-COVID-19.
abovementioned shift in loan composition as well as single cases. The most common asset class indicated Needless to say that the impact on the pricing also depends on the
the fact that banks have already disposed of the vast to be disposed of is the retail unsecured with 35% type of the asset and the exposure. Industries which were hit hard
majority of their corporate non-performing assets. followed by the single ticket sales with 21%. by the pandemic situation (e.g. hospitality with decreasing
occupancy) might see more significant price changes than those
with stable operation. Investors asked in the survey also tend to
reflect the higher risk environment in their IRR, this combined with
the uncertainty regarding the projected time and level of recovery is
expected to result in more conservative pricing.
Figure 16. I expect to dispose of assets in the largest Figure 17. I expect to dispose of assets in the largest
amount in the following asset classes: amount in the following asset classes:
11% 7%
Retail unsecured 34.4% 23% 30% 14%
38% 33%
43% 22%
Single tickets 20.8% 50%
57%
21%
20% 75%
Retail secured 17% 22%
15.6% 25%
46%
21%
20% 17%
Corporate unsecured 10.4% 43% 22%
40% 13% 29%
8% 10% 17%
29%
Corporate secured 9.4% 13% 15%
20% 25% 22%
10% 13% 14% 17% 14%
8% 7%
n/a 8.3%
PL HU CZ HR RO Sl Baltics AL BH XK
Other 1.0%
n/a Other Corporate secured Corporate unsecured Retail secured Retail unsecured Single tickets
Source: Deloitte analysis Source: Deloitte analysis 27Survey results | NPL transactions | Asset classes to be sold
Banks’ preferred strategy in
relation to the management
of retail NPLs is in-house
workout, while the share is
even higher in case of
corporate NPL compared to
the retail segment.
10% of the respondents
indicated that outsourcing
is an option to manage
NPLs.
28Survey results
NPL transactions
Corporate single tickets | Nearly half of the respondents expect the disposal of non-performing single tickets to
rise over the next 12 months
More than 40% of the banks in the CEE Figure 18. I expect that the disposal of non-performing single tickets over the next
region expect an increase in the disposal 12 months will:
of non-performing single tickets over the
Significantly
next 12 months, whilst c. 40% anticipate increase 8.7%
that the dynamics of single ticket
transactions will remain unchanged. In Slightly increase
36.2%
Romania, over a quarter indicated a
significant increase in single ticket Remain unchanged
40.6%
transactions in the upcoming year. The
gradually diminishing large NPL portfolios Slightly decrease
10.1%
offered for sale and the ambition of
Significantly
regulators to develop sustainable long- 1.4%
decrease
term NPL prevention could contribute to
the sale of corporate single tickets, n/a
2.9%
especially on mature markets.
Source: Deloitte analysis
29Survey results
Restructuring and workout
Restructuring | One-third of the respondents expect that 10-20% of retail borrowers with liquidity difficulties will require
restructuring over the next 12 months
In case of corporate debtors, nearly a Figure 19. I expect that [...]% of debtors in the retail and corporate segment with
liquidity/fundamental financial difficulties will require restructuring over the next 12 months.
quarter of participants anticipate that due
to liquidity difficulties 10-20% of
borrowers will require restructuring over
Retail fundamental Retail -Retail
Retail -- liquidity fundamental
- liquidity Corporate - fundamental
Corporate - liquidity Corporate - liquidity
fundamental
the next 12 months. More than one-third
of the respondents believe that only 5- 18.8%
0-5%
24.6%
10% of corporate borrowers with liquidity 37.7% 37.7%
difficulties will require restructuring which 31.9%
5-10%
34.8%
result does not show material difference 26.1% 29.0%
compared to the retail segment. 33.3% 23.2%
10-20%
15.9% 15.9%
There is no significant difference concerning the
expectations of fundamental financial difficulties 2.9% 8.7%
20-30%
between retail and corporate borrowers, with nearly 8.7% 5.8%
40% anticipating that maximum 5% of debtors will
require restructuring. 5.8% 5.8%
more than 30%
5.8% 8.7%
7.2% 2.9%
n/a
5.8% 2.9%
Source: Deloitte analysis
30Survey results
Restructuring and workout
Human resources | The majority of respondents believe they have sufficient human resources to handle restructuring
and workout cases in-house
Almost two-thirds of the respondents Figure 20. I have sufficient human resources in-house to handle the increased
indicated that in-house restructuring was need from debtors for restructuring and workout cases.
manageable, while 15.9% may require
7.2%
external support to handle the potentially Strongly Agree
increased amount of restructurings. 7.2%
Similarly, more than half of the banks
47.8%
consider they have sufficient human Agree
resources in-house to handle workout 56.5%
cases. Banks tend to allocate resources
24.6%
internally from departments (e.g. lending) Neutral
experiencing less workload recently and 20.3%
to some extent also standardise
20.3%
processes. Disagree
14.5%
However, a fifth of respondents indicated that in-house
resources are not sufficient to handle the extra
workload in case of workout. Nearly half of the banks Strongly Disagree
are ready to outsource workout activities to external
1.4%
servicers in the CEE region, save for Hungary where the
share of banks planning to outsource workout activities
is well below the average. Workout cases Restructuring
Source: Deloitte analysis
31List of abbreviations
‘18 2018 H1 First Half (calendar year)
‘20 2020 HH Household
Avg. Average IT Information Technology
BoA Bank of Albania M Month
c. circa NBS National Bank of Serbia
CBBH Central Bank of Bosnia and Herzegovina NFC Non-financial corporation
CBK Central Bank of Kosovo NPL Non-performing loan
CEE Central and Eastern Europe OxCGRT Oxford COVID-19 Government Response Tracker
CRO Chief Risk Officer PLAS Portfolio Lead Advisory Services
EBA European Banking Authority Q1 First Quarter
ECB European Central Bank Q2 Second Quarter
EU European Union RE & Constr. Real estate and construction
GDP Gross Domestic Product SME Small and Medium Enterprises
32Contact us
Financial Industry Leader Central Europe Albania Croatia
Andras Fulop Kreshnik Robo Jelusic Vedrana
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33Contact us
Hungary Romania Contributors
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34#1 M&A Advisor by deal count
Central and Eastern Europe
Mergermarket, 2019
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