Cooperation between banks and borrowers amid recession: problems and solutions
29/10/2009
On October 21, 2001 the round table entitled "Cooperation between banks and borrowers amid recession: problems and solutions" organized by the Halytski Kontrakry publishing house took place in the Conference Hall of Kyivskyi Hotel.
The event was attended by representatives of major Ukrainian banks and network banks, large investment companies, collector companies, law firms, the Ministry of Justice of Ukraine and business mass media. Vasil Kisil & Partners law firm was represented by Yulia Kyrpa, Senior Associate of Banking and Financial Law Practice.
The principal purpose of the discussion was the aspiration of active credit market players towards building up a common operation system and coordinating the approach to and general interpretations of the existing legislative framework which regulates this sector.
The analysis of credit resource market testifies that now 7% to 40-50% of loans in some banks are problem loans. Therefore, urgent actions are required to solve the non-payment issues. International practice shows that the private sector rather than the public sector is now the key factor in the process.
In particular, representatives of banks describing the situations when borrowers repay debts to banks said than since the beginning of the year approximately 40% of borrowers asked banks to perform debt restructuring (such restructuring was applied to nearly 35% of debts).
The rest of the borrowers continue to service the loans debts on the initial conditions. According to bankers, this part of clients supports the economy and becomes a substantial resource during this period of economic hardships. This means that the majority of clients do their best to repay the loans.
Dmitriy Zinkov, President of Board of OTP-Bank said: "With its presence in 9 countries, the bank has a possibility to compare their legislative environment and may with certainty say that Ukraine has a rather good banking legislation. However, the insufficiently strong public enforcement service, as well as the scarce legal literacy of people who resort to loans does not allow the banking sector players to use it efficiently. The debtors refuse to pay not because they cannot but because they are not willing to pay. They don’t have a clear understanding of liability and aftereffects of debt non-repayment. Meanwhile, western countries have a long-established culture of loan servicing. For us it is still a thing of the future."
The round table participants touched upon a concept which is new to Ukraine and according to which investment companies may repurchase loans from banks and manage individual and corporate problem loans. This method of solving non-payment issues is suggested as alternative to the method which involves litigation, bankruptcy proceedings, disposition of pledged property, etc.
The representatives of the Ministry of Justice in their turn pointed out that the somehow inconsistent and groundless actions taken by banks when allowing loans a priori provoke problem loans (insufficient verification of the borrower's credit worthiness, loans allowed without the earnings certificate). They also mentioned the Law of Ukraine "On Amending Certain Legislative Acts of Ukraine" (which in particular contains amendments to the Law of Ukraine "On Reestablishing Debtor Solvency or Declaring It Bankrupt") which will be soon adopted by the Verkhovna Rada and will regulate the bankruptcy issues and bankruptcy proceedings involving individuals who are not business entities.
In her presentation Yulia Kyrpa noted: "Relying upon the expertise of Vasil Kisil & Partners law firm in terms of successful resolution of debt restructuring issues, we may safely assert that practically in all cases we find a restructuring method which is mutually advantageous for both parties of the transaction. International practice also shows that when the debtor is insolvent best results may be reached due to application of certain restructuring methods aimed at improving the debtor's financial standing and its reorganization, instead on any official proceedings related to the debtor's insolvency (bankruptcy)".
Yulia also invited the legal community to not offer to their customers the fraudulent bankruptcy services that promise to release the debtor from any loan commitments where the actions acquire some qualities of criminal offence. She appealed to all lawyer to not compromise the legal profession, but instead to contribute to a healthy legal environment of relations between the banks and the borrowers.
Regarding the credit indebtedness problem, the banking sector representatives showed their readiness to start debt restructuring for borrowers regardless of the fact that this process is painful and requires considerable efforts due to a large number of nuances and legal conditions existing in each particular case.
The issue of collector company activities provoked a vivid interest and discussions. Representatives of collector business provided the experience of foreign banks as an example and laid stress on the fact that when selling loans to collector companies the banks continue to carry out their immediate functions without spending time on the debt collection. Many banks invest millions of dollars in establishing collector networks. In response the representatives of banking sector said that the problem debt departments of the banks are sometimes more active and more successful in handling the debt repayment matters than the collector companies which have not yet reached a sufficiently high level of services and work ethics.
Summing up, the organizers of the event expressed an opinion that borrowers and banks need to agree and use all the available methods for an appropriate resolution of debt repayment problems. Organizers also mentioned that they are feeling optimistic about the fact that Ukraine will soon be able to take advantages of hedge funds which will be ready to repurchase problem loans and hence foster the market activation.
.
The event was attended by representatives of major Ukrainian banks and network banks, large investment companies, collector companies, law firms, the Ministry of Justice of Ukraine and business mass media. Vasil Kisil & Partners law firm was represented by Yulia Kyrpa, Senior Associate of Banking and Financial Law Practice.
The principal purpose of the discussion was the aspiration of active credit market players towards building up a common operation system and coordinating the approach to and general interpretations of the existing legislative framework which regulates this sector.
The analysis of credit resource market testifies that now 7% to 40-50% of loans in some banks are problem loans. Therefore, urgent actions are required to solve the non-payment issues. International practice shows that the private sector rather than the public sector is now the key factor in the process.
In particular, representatives of banks describing the situations when borrowers repay debts to banks said than since the beginning of the year approximately 40% of borrowers asked banks to perform debt restructuring (such restructuring was applied to nearly 35% of debts).
The rest of the borrowers continue to service the loans debts on the initial conditions. According to bankers, this part of clients supports the economy and becomes a substantial resource during this period of economic hardships. This means that the majority of clients do their best to repay the loans.
Dmitriy Zinkov, President of Board of OTP-Bank said: "With its presence in 9 countries, the bank has a possibility to compare their legislative environment and may with certainty say that Ukraine has a rather good banking legislation. However, the insufficiently strong public enforcement service, as well as the scarce legal literacy of people who resort to loans does not allow the banking sector players to use it efficiently. The debtors refuse to pay not because they cannot but because they are not willing to pay. They don’t have a clear understanding of liability and aftereffects of debt non-repayment. Meanwhile, western countries have a long-established culture of loan servicing. For us it is still a thing of the future."
The round table participants touched upon a concept which is new to Ukraine and according to which investment companies may repurchase loans from banks and manage individual and corporate problem loans. This method of solving non-payment issues is suggested as alternative to the method which involves litigation, bankruptcy proceedings, disposition of pledged property, etc.
The representatives of the Ministry of Justice in their turn pointed out that the somehow inconsistent and groundless actions taken by banks when allowing loans a priori provoke problem loans (insufficient verification of the borrower's credit worthiness, loans allowed without the earnings certificate). They also mentioned the Law of Ukraine "On Amending Certain Legislative Acts of Ukraine" (which in particular contains amendments to the Law of Ukraine "On Reestablishing Debtor Solvency or Declaring It Bankrupt") which will be soon adopted by the Verkhovna Rada and will regulate the bankruptcy issues and bankruptcy proceedings involving individuals who are not business entities.
In her presentation Yulia Kyrpa noted: "Relying upon the expertise of Vasil Kisil & Partners law firm in terms of successful resolution of debt restructuring issues, we may safely assert that practically in all cases we find a restructuring method which is mutually advantageous for both parties of the transaction. International practice also shows that when the debtor is insolvent best results may be reached due to application of certain restructuring methods aimed at improving the debtor's financial standing and its reorganization, instead on any official proceedings related to the debtor's insolvency (bankruptcy)".
Yulia also invited the legal community to not offer to their customers the fraudulent bankruptcy services that promise to release the debtor from any loan commitments where the actions acquire some qualities of criminal offence. She appealed to all lawyer to not compromise the legal profession, but instead to contribute to a healthy legal environment of relations between the banks and the borrowers.
Regarding the credit indebtedness problem, the banking sector representatives showed their readiness to start debt restructuring for borrowers regardless of the fact that this process is painful and requires considerable efforts due to a large number of nuances and legal conditions existing in each particular case.
The issue of collector company activities provoked a vivid interest and discussions. Representatives of collector business provided the experience of foreign banks as an example and laid stress on the fact that when selling loans to collector companies the banks continue to carry out their immediate functions without spending time on the debt collection. Many banks invest millions of dollars in establishing collector networks. In response the representatives of banking sector said that the problem debt departments of the banks are sometimes more active and more successful in handling the debt repayment matters than the collector companies which have not yet reached a sufficiently high level of services and work ethics.
Summing up, the organizers of the event expressed an opinion that borrowers and banks need to agree and use all the available methods for an appropriate resolution of debt repayment problems. Organizers also mentioned that they are feeling optimistic about the fact that Ukraine will soon be able to take advantages of hedge funds which will be ready to repurchase problem loans and hence foster the market activation.
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