World Bank ready to take over non-performing loans

IFC, the World Bank's private investment arm, is planning to help banks process non-performing loans, as it is able to get involved through stakes of as much as 20% in private equity funds that are set to focus on this activity, should institutions consider they need such support, says Ana-Maria Mihaescu, head of IFC mission in Romania.

This is one of the clearest messages so far coming from a high-ranking official of an international financial institution, calling on banks to bring out non-performing loans from their balance sheets and outsource them. IFC has an exposure of around 600m euros in Romania, 70% of which to the banking system.

"Our experience from other crises shows the level of non-performing loans generally rises from what we currently have on the Romanian market. We're also considering introducing some products or projects meant to help banks process NPLs (non-performing loans i.e.) on the market, the more so as there is a quite high percentage of so-called distressed assets at present, either admitted or about to be admitted in the financial sector," she specified in an interview with ZF.

Bankers are faced with a growing portfolio of non-performing loans, which is pushing up risk provision expenses. In a bid to adjust portfolios, some banks have started selling these loans to firms specialising in debt collection.

She explained non-performing asset processing required high expertise and a combination of international experience with domestic one, and that there were already funds seeking capital for such operations. "We will probably come with stakes in funds set to particularly focus on taking over non-performing assets and processing them. We are in talks with banks to see whether they need help for the takeover and processing of these assets and to determine how great their need to resort to these funds is, so as we may be able to decide the necessary capital from IFC for it to have a significant participation in this process".

Mihaescu said she did not believe IFC would need to have an involvement of beyond 20% for Romania.

As a matter of fact, some banks have already created their own non-performing loan processing units. "We have to see if it's more attractive for banks to create some strong departments or if they should identify those portfolios and sell them," Mihaescu says.