"The Problem Assets forum, organized by the state corporation Agency for Restructuring of Credit Organizations (ARCO) with the participation of the Vedomosti newspaper, attracted great interest. More than 250 bankers, representatives of regulatory bodies, auditors and consultants from more than 40 countries gathered there. Participants shared their experience of working with overdue, non-repayable and other problem debts.

An eternal theme.

At first glance, it may seem that the topic of non-repayable debts is no longer relevant. However, the almost full hall of guests and participants from different countries of the world was eloquent evidence of the great interest in this problem.

The conference, which took place on June 19-20 at the Radisson Slavyanskaya Hotel, was attended by about 250 participants. Representatives of asset management corporations from the USA, South Korea, China, the Czech Republic and other countries came to speak. Specialists from the Big Four companies gave reports. Even the EBRD Director, Head of Corporate Restructuring, Oliver Green, honored the conference with his presence. Among the Russian officials were First Deputy Finance Minister Alexei Ulyukaev, First Deputy Chairman of the Central Bank Andrei Kozlov and others. Top managers of large Russian and Western banks and companies also took part in the conference.

Anti-crisis preparation.

The most relevant topic for Russia was defined by our government officials and the head of the banking department of Interfax RA Mikhail Matovnikov. Their four speeches complemented each other. So, for brevity, the words of these speakers can be summarized as follows. Threats of a new systemic crisis may arise and are already arising in the banking sector. Most likely, this will be a crisis of bad loans. In order to avoid danger, it is necessary to create and work out mechanisms in advance that allow banks and companies to get out of difficult financial situations. As for government measures, Ulyukayev and Kozlov stated that ARCO will now become a permanent structure engaged in the financial recovery of troubled banks and a public liquidator of insolvent credit organizations.

Foreign technologies.

Another important topic of the forum was specific technologies for working with distressed assets. And here the palm should be given to foreign consultants. It is especially worth noting the reports of PricewaterhouseCoopers Leading Partner David Edmonds and Principal Consultant on Corporate Restructuring at Deloitte & Touche Tomatsu Hugh Dixon. In his report, Edmonds examined specific examples of working with distressed assets in Asian and European countries, also comparing them with Russian practice. He described programs for reforming the bankruptcy process, transaction structuring technologies, profit distribution technologies and risk accounting. Particularly interesting was the story about technologies for creating joint ventures, which are used in some countries to restructure the capital of troubled companies. Hugh Dixon continued Edmonds' speech and also suggested using special joint ventures to solve such problems. In his opinion, this could become "an effective means of eliminating the discrepancy between the level of non-performing asset recovery acceptable to stakeholders and the level of funds returned through the sale of debts on the open market or restructuring the company on its own."

And experience, the son of difficult mistakes.

Another important topic of the presentations was the experience of state-owned asset management corporations. For example, the chairman and CEO of Korea Asset Management Corporation (KAMCO) Won-Yoon Yeon spoke about how the recent Korean financial crisis was stopped at its initial stage due to the fact that the state promptly initiated the creation of a market for non-performing assets.

President and CEO of Huarong Corporation of China, Yang Kai Sheng, shared his experience of selling distressed loans on the open market with the help of specialists from Ernst & Young. In addition, illustrating the speeches of Edmonds and Dixon, Yang Kai Sheng said that the Chinese government, together with Morgan Stanley and Goldman Sachs, created two joint ventures to work with distressed assets.

Claude Rollin, an adviser to the deputy chairman of the American Federal Deposit Insurance Corporation (FDIC), also spoke. He spoke about the crisis that the US banking system found itself in in the late 1980s and early 1990s, when more than 1,500 banks and 1,100 savings institutions collapsed. He also spoke about the measures taken by American banks to identify problem loans early and resolve the problems associated with them, and described the current situation on the US financial market, which, it must be said, is not alarming compared to Russia.

Of course, ARCO representatives also spoke about their experience of overcoming the consequences of the 1998 crisis.

Other performances.

It is necessary to mention the speech of the first vice-president of the bank "Globex" Sergey Filippov. This bank has discovered a new type of business - participation "in restructuring events on various objects of the national economic complex". Over the last year and a half, the bank has taken part in the restructuring of OJSC "Novinsky Bulvar, 31" and the Moscow agro-industrial firm "Voronovo". According to Filippov, in the current situation, when banking institutions do not have the opportunity to receive sufficiently high income from classical operations, such services, unconventional for the banking sector, can ultimately serve as a serious source of income. I would also like to note the speech of the Director of the EBRD Oliver Green. The main idea that Green wanted to convey to the audience was expressed in the very first words of his speech: "Some people think that we are a charitable organization, but we must understand that we are not a charitable organization."

About 40 people spoke at the forum. On the second day of the forum, two sections operated in parallel, where the discussion also covered the legal aspects of working with problem assets, working with problem debts of individuals, organizing auctions of problem assets and maximizing their value, and investigating dubious transactions when working with problem assets.

Results.

It is difficult to give general recommendations on working with distressed assets around the world. Each crisis has its own specifics and requires a special approach. Some technologies are universal, and some are not. However, summing up everything said at the forum in relation to the Russian economy, we can draw the following conclusions.

Everything is fine on the Russian financial market for now. And even the decrease in the profitability of the banking business is only a sign that the market is becoming more civilized. But in this situation, loans are becoming increasingly important for banks. Russian banks are reducing interest rates to the level accepted in developed countries. This contributes to the development of industry, technology, and services. However, in civilized countries with developed economies, among organizations taking bank loans, there are much fewer unstable companies, companies with ill-considered, uncalculated businesses, and unstable markets than in our country. That is why there are so few non-returned and unpaid loans in Europe and the USA. In Russia, the credit boom is just beginning. And no one knows exactly how many loans will be non-returned. Who can guarantee that a large percentage of borrowing companies will survive and be able to repay their debts? The rapid development of the credit business amid instability in other areas of the economy poses a threat to banks. It should be noted that all of the above summarizes the opinions of only the experts and government officials who spoke at the forum.

Some bankers disagree that a credit crisis is inevitable. "Let's not say such scary words as "crisis". There are no such prerequisites," says Garegin Tosunyan, President of the Association of Russian Banks. "The Central Bank and regulators need to think about how to make Russian banks a little more "damped" in terms of the availability of resources, reducing the cost of products. So that we are not driven into conditions where some small market fluctuation will hit us hard and cause a chain reaction." According to Tosunyan, problem assets are not necessarily bad assets. There are simply problems due to the discrepancy between short and long-term resources of banks. Today, banks have resources, but short ones. However, banks cannot sit on them. This will harm them. Short money is invested in assets. And if the market situation changes, these assets may become problematic for many banks. A tool that can help here is refinancing. "This dumping is necessary to remove the problems that arise," says Tosunyan. "The art of regulatory bodies is to use many tools, and not limit themselves to just two supervisory sledgehammers, one emission machine and actions on the currency market." Tosunyan's opinion is countered by Alexey Terekhov, director of the banking audit department at FBK. "Banks will certainly encounter the problem of managing non-performing loans starting next year," he believes.

According to the majority of speakers at the conference, the main instrument for preventing a crisis could be a pre-created and permanently operating market for distressed assets. In Russia, such a market emerged during the 1998 crisis, but disappeared after most debt obligations had been fulfilled. This is currently the only effective measure for preventing financial crises, as proven by the experience of South Korea, the United States and other countries. If such a market were to exist permanently in Russia, debts could become the same commodity as the loans themselves. This means that crisis phenomena in banks and companies would be resolved in the normal course of business. If a borrower fails to repay a loan, the bank sells it to an interested company, which finds a way to profit from it.

Compared to other countries that have experienced financial crises, Russia looks quite decent. As was emphasized in one of the speeches, states spend from 10% to 50% of their annual GDP on post-crisis stabilization. Russia managed to achieve stabilization using only 2% of its GDP. And only 0.12% of GDP was spent on working with problem banks.

Not everything has been said.

Unfortunately, the forum did not cover all the issues that are important for Russian financiers. According to Alexey Terekhov from FBK, government officials and ARCO representatives did not name any new market instruments that would allow managing problem assets. Nothing was said about either the refinancing system or the securitization system.

In between the reports, the conference guests also talked about the difficulties with the legal write-off of problem loans. "The practice that has developed with writing off problem loans is always in the taxation sphere," says Terekhov. "After all, the more documents a bank has that the loan cannot be repaid, the more grounds there are to write it off as expenses. In this case, the Bank of Russia and tax authorities begin to demand from the bank certificates of completion of all procedures that allow the loan to be repaid. It seems that it is necessary to prove the very fact of the loan being issued and that there are no abuses in this. But where can you get such a certificate? It turns out that the bank must spend incredible efforts searching for all sorts of certificates. As a result, losses accumulate."

According to Terekhov, it is also sad that the forum participants did not hear what the losses in the banks' loan portfolios are. "Andrey Kozlov reported that reserves to cover problems with loans reach 2%," says Terekhov. "But this is clearly not enough for today's portfolios. And no one said anything about this at the forum."

QUORUM: Congress of Anti-Crisis Fighters