9 June 2017
The MNB announced a new recommendation to financial institutions about the settlement of the loans taken up by companies facing settlement difficulties and on how to avoid the build-up of overdue corporate loans in the future. The objective of the recommendation that shall be applied from November is to restructure the loan to restore companies’ ability to repay loans as soon as possible, while making sure that payment is continuously sent.
The Magyar Nemzeti Bank (MNB) has already taken regulatory steps to reestablish the household sector’s ability to repay loans. The purpose of the MNB’s latest recommendation is to settle the HUF 600 billion worth of overdue corporate loans and to help prevent such a build-up of loans in the future.
The financial crisis showed that collecting overdue corporate loans through legal means only worsens the situation of the companies facing payment issues – instead of providing a solution – because problem loans will stay in the bank’s balance sheet for a long while. This means that the recommendation has two aims: to restore companies’ ability to repay loans and to prevent the build-up of such non-performing loan portfolios in the future.
In order to efficiently handle non-performing loans, the recommendation contains principles and practices which improves the companies’ ability to pay by closely cooperating with its institutional lenders to establish personalized financial solutions (primarily by restructuring the terms of the loans) before legal execution procedures to collect the payment are used.
The new recommendation mainly deals with company credit claims facing or are about to face payment difficulties and with the duties the institutional lenders are expected to do – partly together with the cooperative debtors – in regard to the communication between the two sides, execution and provisional extension, to bridging financing and the actions throughout the process of finding a proper solution.
In the case of company debtors facing payment difficulties, the MNB expects the institutions to immediately establish contact with debtors, the continuous provision of information to help finding a solution, and in the case of multiple institutions financing the debtor, the creation of a debtor college in charge of communication and coordination as well. To find a successful solution, it would be helpful if the two sides – perhaps as a common agent – hired independent experts for the discussions.
According to the recommendation, it is suggested for creditors to refrain from collecting their debts using legal enforcement and to allow some delay in regard to providing payment. During the moratorium the creditors – for the sake of preparing the possible solutions – assess the debtor’s financial position and other circumstances, to which (with the desire to cooperate) extra information from the debtors may be asked.
The MNB expects that the creditor proposal to reestablish companies’ ability to pay takes the opinions of the debtor proposal into account as well. The restructuring can only be considered effective if the debtor can pay its loan in the future.
The MNB expects the application of the recommendation from 27 November 2017 from the participants of the financial, investment and insurance sector involved in lending. To prepare the recommendation, a large-scale interest representation consultation was conducted and the MNB closely cooperated with the European Bank for Reconstruction and Development.
Magyar Nemzeti Bank