Our CTO, Burkhard Heppe, earlier this week spoke at the 8th IPAF Training Seminar in Jakarta, Indonesia. IPAF is the International Public Asset Management Companies Forum that represents government agencies and AMCs involved in buying non-performing loans (NPLs) and distressed assets in the Asia Pacific region supported by the Asian Development Bank (ADB). Burkhard’s training session covered the data requirements and valuation of NPLs and a blueprint for setting up an NPL trading platform in Asia. Based on his contributions to a recent feasibility study of the ADB on developing NPL trading platforms to strengthen Asia’s financial markets, he compared the NPL data templates proposed by the ADB with the EBA templates introduced in Europe earlier this year. The Asian template captures additional data fields like those related to land use rights and state-owned enterprises that play an important role in the region. Valuation is challenging due to a lack of good, standardised data and limited trading. NPL trading platforms can help find specialist investors, prepare comprehensive data sets for valuation, and execute transactions more efficiently.
Burkhard’s key take aways from the IPAF Training Seminar are as follows.
- Government agencies from Korea and Uzbekistan successfully use online asset auction platforms to offer transparency when selling state owned properties.
- NPL sales via online platforms are successful in China and at an earlier stage in Kazakhstan and Vietnam, but participation from international investors is limited in most countries.
- The ADB and many countries in the region wish to strengthen their financial markets by facilitating more cross-border investments in NPL transactions. Legal and regulatory hurdles for non-bank or non-domestic investors continue to be widespread which reduces competition in NPL sales.
- Some countries like Thailand see a high degree of competition whereas recent NPL sales in Malaysia or Indonesia saw limited investor participation.
- NPL ratios are near historical lows in many Asian countries which causes some public AMCs like KAMCO in Korea or regional AMCs in China to diversify their activities from corporate NPL purchases and restructurings to household NPLs facing new operational and data challenges.
- In some countries like Vietnam NPLs have recently increased due to higher debt servicing costs and falling real estate prices despite strong economic growth.
In summary, NPL trading platforms can help markets become more efficient and help international investors to participate through best-practice based transaction processes and better transparency from standardised data. However, legal hurdles must be cleared first before cross border NPL trading can thrive in more Asian countries.
