Interest from foreign companies in Russia's bad debt could lead to the formation of the first ever market for non-performing loans in the country, which is, however, unlikely to make for easy pickings.
Foreign banks are looking to buy some of Russia’s bad debt, with Timothy Krause, Senior manager of IFC from the World Bank Group, saying that they are looking at investing millions of dollars in non-performing loans in Russia. He is also calling for the creation of a transparent bad debt market.
“You will see both foreign and local investors coming into this market. They will come in first to retail loans and this is why we are looking to work with a firm called EOS. And I think they’ll also come to work with SME loans and here we are working with a firm like Värde. So, we are hoping to invest close to $200 million with these two companies. It’s the start of the market, but when we really know that we have a market is when we have a transparent auction – when someone like VTB, or Sberbank, or Alfa-Bank comes and says, ‘Come and bid on my portfolio, here is my due diligence room, you can take a look at all the information – I want the best price.”
Bad debts accounted for over 6% of the loan market, or $35 billion at the end of 2009.
However, for a debt collection agency this is clearly worth considerably less than $35 billion, as much of the money will prove unrecoverable. David Jones, Chairman at Pristav Collection Agency, adds that, so far, there is not enough reason to starting selling bad debt.
“I’m guessing it would be about one fifth, but no one really knows the answer. This is about outsourcing, but you are speaking about the sale of debt, and I think that number is much smaller. I think it would not be significant until the bank starts lending. So, as long as the banks for whatever reason are unable to lend, that means they will keep liquidity on their balance sheets. There is no urgency to sell marginal assets.”
For foreign companies to profit in the bad loan market in Russia, the ratio of bad loans should be significant. The current figure might include the short and mid-term overdue loans that banks will go after themselves or outsource to local collection agencies. So, foreign companies hoping to feast on Russian debtors may end up just getting the crumbs from the table.