Understanding the current Romanian market
Businesses in Romania have been heavily affected by the pandemic, and their creditors will not be spared the consequences. The time is now for each creditor to scrutinise its portfolio of loans and consider next steps.
Until the end of 2020, the regime allowing debtors (consumers, SMEs and large corporates) to defer their payment obligations under loan agreements will remain in place. Considering that Romania is now confronted with the second wave of the pandemic and a record number of cases, there is news that such a regime will be extended to cover the first half of 2021 in order to allow businesses some space to recover.
The state aid schemes aimed at tackling the unwanted economic effects brought about by the pandemic have been implemented for certain debtors more successfully than for others (for instance for SMEs). In the case of large corporates, the framework is so restrictive that essentially the consent of existing lenders is required.
However, these measures are far from sufficient in order to resolve the wave of debtors that will not be in a position to service their debt in the short to medium-term, and therein lies the opportunity but also the challenge.
Opportunities for those who are prepared to take a calculated risk and critically analyse their portfolios
There is no better time than now for creditors to look carefully at their portfolios and analyse a) which debtors may turnaround or need further financing and b) which debtors should be restructured or where an investment is needed in order to boost business.
Depending on the industry segment, the financial strength of the debtor and security package established in favour of the creditor, if any, the restructuring of the debt should be based on realistic forecasts adjusted to the current environment.
Other options include accessing state aid funds where the creditors would be required to share their first rank security with the state but at the same time reduce their risk by benefiting from a state guarantee covering a large part of their exposure. A reorganisation, standstill or a moratorium in accordance with insolvency laws may be the right approach in certain cases where dragging financial difficulties would not yield positive results in the foreseeable future.
Lastly, despite the unfriendly fiscal regime, a sale of the receivable may also be considered where the fiscal disadvantages are outweighed by the lack of benefit of keeping a loan in the balance sheet of the creditor.
Timely action is key to using restructuring measures effectively
Diligent lenders, who have navigated through the 2008 financial crisis will be more versed in handling the restructuring tool kit and in recognising the need to act in a timely fashion by clearly monitoring and identifying those loans where action is required. Given that payments have been deferred and that the deferral period may be extended, a large part of the exposure will not become immediately problematic.
We expect a gradual increase of non-performing loans starting with the end of the payments deferral period and looking forward. This is why a close analysis of the loan portfolios will allow creditors to be prepared and to have their documentation and data in good order. That way, they can ensure an efficient application of any restructuring measure they see fit to apply.