This year, Europe is emerging from the deepest recession in a generation. But this has not been a normal recession. The number of insolvencies has come down over the last year, and non-performing loans (NPLs) are close to a historic low. Numerous government support measures, such as tax rebates, furlough schemes, moratoria and the suspension of insolvency proceedings were highly effective in temporarily bridging enterprises’ liquidity shortfalls.
However, most of these support measures have come to an end, and many firms’ liquidity buffers are depleted. Meanwhile, a range of sectors will need to confront
a fundamental reshaping of their business models. The European Systemic Risk Board, tasked with the big financial stability issues in Europe, speaks of a coming tsunami of insolvencies.
In developing countries, the COVID-19 crisis will be more protracted, and a full recovery is less certain. Many mid-sized companies entered the crisis with significant leverage levels, and the more numerous microenterprises are poorly prepared for widespread debt defaults among customers and suppliers. Some countries have kept in place asset management companies and other institutions that helped resolve past crises, but few national frameworks are well prepared for defaults on the scale that is now expected to unfold.
One key lesson from past crises is that unsustainable debt should be tackled early to underpin a recovery. NPLs, insolvencies and business restructuring are regular features of renewal in market economies. A bank with high NPL stocks not only will waste energy on too many workouts, it will also restrict credit to other growing enterprises.
The process of resolving high NPL stocks always involves difficult choices among competing claims by lenders, owners and other stakeholders. However, the inevitable debt reduction also presents plenty of opportunities, as sound businesses and innovative entrepreneurs are offered a fresh start with redeployed capital.
Many bank regulators and supervisory authorities have revamped the frameworks that govern NPL workouts. There is now much greater scrutiny by supervisors of how banks recognize NPLs and how they manage each workout. Governments, for their part, have recognised the need to reform the rules for insolvency and business restructuring.
Increasingly, banks seek to divest NPLs in capital markets. Investors, which often operate globally, seek common standards in loan documentation and processes for conducting due diligence leading up to claims transfers. Innovative solutions, such as portfolio sales and securitisations, play a much more prominent role than in the past. “Dry powder” in private equity and credit funds are near all-time highs and could play a much more significant role in the coming phase of NPL workouts.
A new offering in the Frankfurt School Executive Education suite
NPL management and investment requires skills that rarely are available to the extent required when insolvencies emerge in large numbers. Such skills will be in high demand during the upcoming recovery. A diverse set of participants have become part of the NPL resolution process: investors, their loan servicers and advisers. Each market participant will need to understand the approaches and business models of the others. Both European and emerging markets have used some innovative mechanisms that could be relevant in other regions. Developing countries have expanded their local capital markets and reformed their insolvency and restructuring frameworks, opening up multiple new opportunities for workouts.
The Frankfurt School’s Executive Education and its Development Finance (FSDF) e-campus teams are therefore delighted to introduce the new Certified Expert in NPL Management and Investment course, which is now open for registration.
FSDF was established over 10 years ago with the following vision: education is central to development – both in the sense of personal advancement and in the wider context of developing national economies. Its online programmes help participants to systematically and successfully develop their qualifications and build their careers.
More specifically, the mission of the course on NPL management is to equip a new cohort of restructuring professionals with the necessary skills for the upcoming recovery: adept in judging distressed portfolios and designing the right restructuring solutions, while being mindful of the borrower’s perspective, the economic ramifications of debt distress, and the context of these processes within insolvency law and as well as banking regulation and supervision. All of this while combining financial acumen with responsible business practices.
The 10 units in this course cover the core areas of risk and arrears management relevant to NPLs, as well as key accounting and supervisory concepts. There is extensive evidence on which to draw from past episodes of high debt and NPLs in Europe and in emerging markets, and we expect there is much to learn from both regions that can be relevant elsewhere. The course includes extensive discussion of restructuring and insolvency procedures, making participants fluent in all relevant legal and regulatory concepts. A number of in-depth case studies will build skills in judging alternative workout options. Finally, participants will be introduced to loan sales and securitisations, which present new opportunities for lenders, investors and their servicers.
The FSDF course also builds networks through the sharing of experience among professionals in the field. An optional series of eight live sessions will bring some leading practitioners to the Frankfurt School. Restructuring advisors, lawyers, regulators and development practitioners will present their experiences – and, in turn, learn from course participants themselves.
As are our other online certification programmes, this course is a six-month part-time training, designed to be conducted alongside full-time work or other obligations. Apart from a few deadlines, the course follows a very flexible approach, allowing participants to create their own study schedule.
At the end of the course, participants will be fully prepared to engage with supervisors, other insolvency professionals and investors in complex situations involving distressed debt – and help chart the way towards the recovery to which we are all looking forward.
About the author: Dr Alexander Lehmann is the Course Lecturer for the Certified Expert in NPL Management and Investment program.
This feature is sponsored by the Frankfurt School.
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