OREANDA-NEWS. June 9, 2011. A new report sponsored by IFC, a member of the World Bank Group, finds that development of Ukraine’s problem-loan market remains slow, suggesting that local banks are still unable to dispose of their non-performing assets, which limits their capacity to free up capital for new lending.

IFC’s Financial Sector Crisis Response Program in Europe and Central Asia contracted Ukrainian rating agency Credit-Rating to review and analyze the potential of Ukraine’s non-performing loan market. According to the report, “Trends and Prospects of Ukraine’s Problem Loan Market,” sales of corporate non-performing loans were sporadic. The report also estimated banks’ non-performing loans averaged about 35 percent of their credit portfolios.

“We expect that overdue retail loans will be offered for sale in 2011, mortgage loan sales may also increase,  but the market on the whole will remain sluggish,” said Stanislav Dubko, CEO of Credit-Rating. “It is time for banks to change, improving their risk management systems and reviewing the way they work with non-performing loans.”

The report reveals that market players often lack consistent valuation methodologies to assess bad loans, banks are reluctant to sell, and investors are often unable to make informed decisions on the best structure to purchase and manage distressed assets and assess the underlying quality of the portfolios.  

“Currently, a deficit of objective information is present on the market,” said Garth Bedford, Head of IFC’s Financial Market Crisis Response Program in Europe and Central Asia. “Banks need practical solutions for selling their non-performing loan portfolios so they can focus their resources on expanding lending to the real sector. We hope that the report produced by Credit-Rating will help all market players speak a common language and ultimately lead to a transparent and functional market for distressed asset disposition in Ukraine.”

IFC’s Financial Sector Crisis Response Program in Europe and Central Asia was launched in 2009 in partnership with the governments of Austria, Finland, the Netherlands, and Switzerland. To disseminate good practice in risk management, the program has delivered training to more than 2,000 senior and mid-level banking professionals throughout the region. IFC experts also are working on legislative and regulatory aspects of creating a transparent and functional market for distressed assets to facilitate post-crisis recovery.