Banks operating in Romania have significantly reduced their NPL ratio (currently below 5%)

1. In terms of single ticket restructurings, how active and attractive is the Romanian market?

While the banks operating in Romania have significantly reduced their NPL ratio (currently below 5%) mostly via portfolio sales, they still have on their balance sheets medium and large exposures, which were not suitable for portfolio deals. In our experience, the banks did not take in majority of cases a structured process approach for disposing single tickets, rather pursuing ad-hoc transactions, in many cases initiated by investors which have identified specific deals and negotiated them directly. Lack of a public tendering process with respect to single tickets, poses some difficulties for investors in terms of identifying suitable deals, hence good knowledge of the market and industry focus are key. On the positive side, we are seeing some cases more recently where banks (especially in case of syndicated loans) decided to approach single names in a more structured process, tendering it to multiple investors.

2. What are the developments in the Romanian legal framework and what are the key issues investors should consider when looking to invest?

The most important amendments impacting distressed debt trading in Romania recently where certain changes in the tax laws limiting the deductibility for banks of bad debts’ provisions in case of disposals. The said tax legislation did not fully blocked the NPL market, however it did make an impact and even put certain transactions under question mark or on hold. There were a number of other legislative initiatives with potentially high impact on the NPL market, however they were mostly focused on consumer debt and, in any case, so far the respective legislative package failed the constitutionality test.

Notably, the Constitutional Court rejected the proposed amendments for procedural reasons, not on the merits, hence they are not fully off the table, however, in order to be again discussed, the full legislative process would have to re-start from the very beginning, so definitely not something imminent. Other than this, the existing legislation in matters relevant for single ticket distressed debt, i.e., insolvency and enforcement mainly, while still posing significant complexity, did not prove to be an impediment for transactions taking place successfully, when well prepared and executed.