CEE banks favour restructuring to foreclosure

Some 30% of real estate loans in Central and Eastern Europe are considered to be impaired but lenders in the region still favour restructuring to foreclosure. In 2011 about 10% of property loans suffer from ‘serious impairment’ while a further 21% have ‘minor impairment’ in CEE, according to data compiled by KPMG.

About 50 banks took part in KPMG’s study which indicates the biggest problems are in the Baltic states where 54% of property loans are seen as having a minor impairment and 17% are seriously impaired, according to the research.

Romania has the highest level of serious impairment, totalling 23% and a further 33% suffers from minor impairment. In contrast, more than 90% of property loans in Austria, Bulgaria and Poland are fully compliant. Austria is the best performer with just 2% of loans labelled as having minor impairment.

The report suggests impairment levels across CEE have risen just 1% compared to 2010. Last year 20% of loans were categorised as suffering from minor impairment and 10% were in the serious bracket. A loan is considered to be impaired when the borrower has trouble paying capital or interest on time.

The study does not, however, address the quality of the assets underlying the loans. Speaking during the Property Investment Forum in Budapest earlier this month, Tamás Ádány, CEO of the real estate division of Hungarian bank OPT, suggested most of the impaired loans were not for investment-grade property.

Andrea Sartoni, partner and head of real estate in CEE at KPMG, said there had been an improvement compared to last year in some countries but the overall regional average remains stable.

The results, he said, reflect the overall macroeconomic situation in the various markets in CEE and the banks’ view that most countries - except possibly Austria and the Czech Republic - will not see a real estate recovery 'any time soon'.

As a result the amount of provisions (value adjustments) is expected to increase in nearly all countries, with the exception of the two top performers. Banks see significant increases in the levels of provisions in Romania, Slovenia and Serbia

However, banks in all CEE countries indicated that the majority of problem loans could be restructured successfully as long as the borrower remained cooperative.

The other criteria for a successful restructuring included a strong business plan, a high quality asset and the borrower’s ability to provide additional equity.