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NPL Markets and International Finance Corporation (IFC) sign a Collaboration Agreement in South America

By Rodolfo Diotallevi

Chief Business Officer

Published Friday 29 July, 2022

The collaboration aims to create a more efficient and deeper marketplace to trade Non-Performing Loans and Performing Loans in South America to foster economic growth, social development and build resilience in its financial markets

NPL Markets, a leading platform for the trading, management and valuation of Non-Performing Loans (“NPLs”) and performing loans based in Europe today announces a collaboration agreement with International Finance Corporation (IFC), a member of the World Bank Group. This partnership will build the foundations for a more efficient and deeper marketplace in South America to trade and manage performing loans, distressed and other illiquid assets. The collaboration will initially be focused on the largest markets in the region, Brazil and Mexico, with the possibility of exploring further markets in the future. This collaboration is an example of IFC’s early-stage market and project preparation work to build a pipeline of opportunities for private sector investment (an approach it calls “Upstream”).

As NPL Markets’ CTO Burkhard Heppe observes, “The world is paying a hefty price for Russia’s war against Ukraine. Global growth will be lower and inflation higher and the poorest will be hit hardest. IMF and OECD have sharply revised their economic growth forecasts downwards and stagflation has now become a baseline projection. In Brazil and Mexico, NPL ratios have been stable throughout the Covid years, but, as in other regions, inflation has recently increased, and interest rates are going up sharply. In Mexico, bank lending rates have increased from 4.5% to 7% in the year to April whereas in Brazil bank lending rates continue to be extraordinarily high above 30% while money market rates have increased from 2.2% to over 10%. Lower growth, higher inflation and interest rates will make it harder to service debt and NPLs are certain to increase.”

Fitch announced in May 2022, the combination of Brazil’s rapid cycle of interest rate hikes, persistent inflation in developed and emerging markets, and the seasoning of banks’ loan growth in 2021 supported its expectation that NPLs could increase to pre-pandemic levels before 4Q22. The erosion of real incomes due to inflation and a sluggish job recovery, coupled with higher borrowing costs related to monetary tightening, will further add to pressures.

Adel Meer, FIG Global Upstream Manager at IFC said:

"Marketplaces and platforms that deal with not just distressed assets but a range of other assets, creating ways to connect new types of buyers and sellers for these portfolios, is going to be the future. IFC is very excited about signing this collaboration agreement and the meaningful investment opportunities that can come out of this project."

Gianluca Savelli, Chief Executive Officer of NPL Markets said:

“We are very excited to work with IFC in South America to create a more efficient market to trade performing and non-performing loans. Providing a more efficient mechanism to sell and value illiquid loans will be crucial to help banks and institutional clients to better manage their credit exposures. NPL Markets is proud to further expand its international ecosystem bringing together more business opportunities for buyers and sellers of illiquid assets”

NPL Markets’ clients in Europe have over the three years used its platform to value over 5 million performing loans and 1.6 million NPLs. The Company’s software solutions and digital platform is used by hedge funds, investment banks, loan servicers and other investors to purchase, sell, value and monitor their loans. NPL Markets’ clients access a large database of information and credit curves derived from over 15 million loans over 27 jurisdictions (Europe, US, Canada, South Africa, Mexico and Brazil).

The company provides an integrated solution to institutional clients covering: · Data preparation and enrichment on performing and non-performing loan portfolios · Valuation, Analytics and Data, - Portfolio Valuation, Bank balance sheet impact and future cash flow, Portfolio optimisation for disposal. Access to credit curve derived from over 15 million loans · Digital Marketplace, supporting the full disposal process delivering transparency and faster execution
· Portfolio performance reporting and regulatory reporting - reporting with consistency check, original business plan versus actual and forecast based on predictive analytics to actively manage collection and future recovery process

NPL Markets conducts regular research into the NPL market and its latest report published in May 2022 found evidence that current levels of high inflation can materially increase default risk. In Mexico, NPLs have jumped by 30% in Q1 2022 compared to Q4 2021 while in Brazil, the NPL Markets research projects a 50% increase in NPLs over the next two years. In Europe, NPL Markets research projected higher defaults in Italy and the UK, while Germany and France appear to be less impacted. Its findings contradict academic research studies which assume and observe that inflation and loan defaults are negatively correlated. NPL Markets cautioned that these academic studies may underestimate credit risk in a stagflation scenario where economic output declines and prices increase. The current environment and withdrawal of Covid support has globally encouraged more investors and holders of both performing and non-performing loans to sell or buy these assets. The NPL Markets platform has recently seen its first transactions in Latin America and market conditions are expected to result in a steady increase in activity on the NPL Markets platform.