00:13 Welcome,
00:13 everyone.
00:14 Good morning,
00:15 good afternoon,
00:16 and good evening.
00:17 My name is Alfonso Garcia Mora,
00:18 Regional vice president for IFC
00:21 for Asia and the Pacific.
00:23 Today's session focuses on financial sector stability
00:26 in the face of a growing tide of SME and corporate defaults
00:30 in the wake of COVID-19.
00:32 The discussion
00:33 will explore the potential impact on the financial sector
00:36 in general and in banks in particular,
00:38 when COVID-driven public policy support and relaxed
00:41 regulatory policies come to an end.
00:44 We will explore how policymakers and financial institutions
00:47 can work together to adapt legal and regulatory structures
00:50 to respond to the COVID crisis and its aftermath.
00:54 Panellysts will discuss how innovative solutions
00:57 can help increase the avail available liquidity
01:00 to reach firms that are in difficulty.
01:02 But which would be sustainable and viable under normal economic
01:06 conditions.
01:07 For that,
01:07 in today's event,
01:08 the 5th in a series of World Bank Group events exploring aspects of,
01:12 of these issues,
01:13 we will be joined by Stephanie von
01:16 Friedeborg,
01:17 senior Vice President and Chief Operating Officer at IFC
01:20 who will provide opening remarks,
01:22 Zarin
01:23 Eruwala,
01:24 CEO of Standard Chartered Bank India,
01:27 Bangladesh,
01:27 Sri Lanka,
01:28 Nepal.
01:30 Jonathan Davin,
01:31 Chief Investment Officer and co-managing Partner of Bain Capital,
01:35 and Gianluca Cicini,
01:37 advisor to the regulator
01:38 Bank Italy,
01:39 Central Bank of.
01:41 We have an audience from around the world
01:43 and we are streaming live on the World Bank Group's website.
01:46 If you have questions,
01:47 tweet at us at the World Bank Group
01:50 finance and use the hashtag insolvency Series.
01:54 Let me now turn to the floor over to our IFC Senior Vice President of Operations,
01:59 Stephanie von Frieden.
02:01 Stephanie,
02:01 for.
02:04 Thank you very much,
02:05 Alfonso,
02:05 and thank you to our virtual audience for
02:08 joining us today at this important session.
02:11 As Alfonso noted,
02:12 today's session focuses on managing financial institution
02:15 risk during and following economic crises,
02:18 in particular
02:19 the COVID-19 pandemic.
02:22 Increasing corporate and SME defaults negatively impact banks,
02:26 and the COVID crisis has placed huge stress on financial systems around the world.
02:32 Corporate debt was already at a historic high prior to the pandemic,
02:37 with debt in emerging markets at 170% of GDP.
02:41 In many markets,
02:43 immediate liquidity risks were alleviated in the last
02:46 year by decisive actions taken by public authorities.
02:50 Moratoria on repayments delayed the need for many
02:53 companies to file for insolvency or bankruptcy,
02:56 while regulatory forbearance delayed the need for
02:59 banks to classify loans as nonperforming.
03:02 For example,
03:03 in India,
03:04 the Reserve Bank of India allowed delayed recognition of NPLs.
03:08 This provided short-term support to economic
03:11 growth by stimulating credit issuance.
03:14 The COVID pandemic and the resulting potential increase in NPLs can endanger
03:19 banks and financial systems already weakened
03:21 by previous economic and financial crises
03:24 or
03:25 those in which capital buffers are low.
03:28 In certain countries,
03:29 banks' tier one capital ratios,
03:31 a key measure of their financial strength,
03:33 could decline by over 2% points as a result of COVID.
03:37 In fact,
03:38 banks' overall weak capital position could be unsupportive of growth,
03:42 as financial institutions in some countries may remain
03:45 reluctant to lend except to the most creditworthy.
03:49 Public sector actions to support the financial sector can set the tone.
03:54 Policymakers are critical in developing the
03:56 regulatory framework conducive to NPL recognition,
04:00 management,
04:01 and resolution,
04:02 as well as in the development of a vibrant distressed asset market.
04:06 The 2008 global financial crisis resulted in
04:09 many regulatory reforms to improve management and transparency
04:13 around the identification
04:15 and classification of distressed assets.
04:18 Regulatory changes also helped banks manage the impact on their capital.
04:22 In the EU,
04:23 with the introduction of IFRS 9 as a standard,
04:26 banks can choose to spread the capital impact of Tier
04:29 1 common equity from increased impairments over a five-year period.
04:34 In 2016,
04:36 India adopted a new insolvency and bankruptcy code
04:40 that provides a much stronger framework for addressing NPLs with
04:43 real commitment from the government to operationalize the system,
04:47 replacing a fragmented insolvency and bankruptcy regime.
04:51 Our panel is likely to provide more insight
04:54 on these reforms.
04:56 The overarching objective of many policies is to support
04:59 banks to return to doing what they do best,
05:02 providing credits to their clients.
05:04 More markets need to ensure that the necessary legislation is in place to
05:09 allow banks to offload NPLs to third parties and private sector investors.
05:14 IFC and the World Bank Group are actively working with
05:17 a number of regulators to identify reforms necessary to the creation
05:21 of secondary markets.
05:23 The private sector is an important source of liquidity
05:26 and skills to invest in and restructure distressed companies,
05:30 both large
05:31 and small.
05:32 It can provide the skills needed to
05:34 carry out operational and financial restructuring,
05:37 importing sector-specific knowledge,
05:40 and importantly,
05:41 new money for struggling but viable borrowers.
05:45 Public-private cooperation can take on many new forms.
05:49 Perhaps cooperation successfully used elsewhere can be
05:52 a replica for emerging and developing economies,
05:55 and our panelists will have specific ideas
05:57 in this area,
05:59 such as France,
06:00 Italy,
06:00 and Ireland's post-COVID proposals to incentivize private sectors,
06:05 private investors to contribute
06:07 to equity.
06:09 To insolvent SMEs.
06:11 Most importantly,
06:12 under the scheme,
06:13 the private sector will lead the way in
06:15 selecting the companies and injecting the equity.
06:19 I very much look forward to today's discussion,
06:21 and I am sure that our panelists will bring energy,
06:24 innovation,
06:25 and enlightenment to a complex
06:27 but urgent topic.
06:28 With that,
06:29 I turn back to you,
06:30 Alfonso.
06:34 Thank you very much,
06:35 Stephanie.
06:36 Uh,
06:37 great,
06:37 uh,
06:37 uh,
06:38 remarks,
06:38 and I think that you have set out
06:40 very well the key issues and the key points that
06:42 we will discuss uh this morning with these three excellent,
06:45 uh,
06:46 panelists.
06:47 So let me,
06:47 let me start,
06:48 uh,
06:49 the panel with,
06:50 uh,
06:50 with Sarin.
06:51 I will,
06:52 I will kick off,
06:52 uh,
06:53 with you.
06:54 Uh,
06:54 so you are the CEO,
06:55 uh,
06:56 Sain of Standard Chartered Bank
06:57 in India,
06:58 as well as the Bangladesh,
07:00 Sri Lanka,
07:00 and Nepal,
07:01 actually,
07:02 for quite different markets in,
07:04 in,
07:04 in,
07:04 in many,
07:05 in many dimensions,
07:06 no.
07:07 And you have been named 7 times as one of
07:09 the 30 most powerful women in India by business today.
07:13 It is not a minor thing.
07:15 COVID pandemic has hit India quite hard,
07:18 particularly this second wave,
07:20 and we are now seeing
07:22 the bad,
07:23 the,
07:23 the,
07:23 the,
07:23 the consequences of this,
07:25 and I am very sorry for all those that are suffering in this,
07:28 in this,
07:28 uh,
07:29 in this current context.
07:31 We have all witnessed the terrible impact on the health system,
07:34 the population at large,
07:36 and the impact that this situation could also have in the
07:40 private sector and especially on the small and medium enterprises.
07:44 With over 30 years of wide experience in finance,
07:48 can you provide some color on the impact of COVID-19 on the financial sector
07:54 and on asset quality?
07:56 Do you think that the government measures
07:58 have been sufficient
07:59 and have
08:00 helped banks,
08:01 as well as corporate borrowers
08:03 to better manage the situation?
08:07 Yeah.
08:08 So,
08:08 last year when India had the lockdown on the index of strictness,
08:14 India was one of the worst in terms of the lockdown that we had in April,
08:18 May.
08:19 Uh,
08:19 that period,
08:19 the government provided moratorium from March to August for,
08:24 uh,
08:24 borrowers,
08:25 which to my mind,
08:26 really,
08:26 really helped.
08:27 The second thing the government did in that period was they had
08:32 something called emergency credit line guarantee scheme,
08:36 where the government guaranteed 20%.
08:40 Uh,
08:40 so if a client had a $1 million borrowing,
08:43 the government.
08:43 Gave in guaranteed incremental $0.2 million.
08:47 So that scheme really helped a lot of borrowers,
08:51 and it was initially targeted for MSME,
08:54 but then the scope was widened to
08:56 affected sectors up to,
08:58 up to a particular turnover.
09:00 So that scheme actually took
09:02 an uptake of about $33 billion
09:05 and
09:06 that.
09:07 To my mind,
09:08 that scheme was one of the best schemes that happened,
09:11 and thankfully,
09:12 we saw some rebound of the economy.
09:15 In fact,
09:16 April,
09:16 um,
09:17 GST collections,
09:18 ironically for the Indian government were
09:20 the best that we've seen in a couple of years.
09:24 Of course,
09:24 that's the March
09:26 spillover effect,
09:27 but that symbolizes that the economy had started
09:30 rebounding thanks to a lot of the measures.
09:32 Also,
09:32 what was mentioned by Stephanie was
09:35 that the NPA recognition was deferred.
09:38 And that also helped because uh we didn't have
09:42 genuine borrowers suffering with banks having litigation,
09:45 etc.
09:47 Um,
09:47 in terms of this impact on the banking sector,
09:50 because of the delayed recognition of NPA,
09:53 I think we'll see the NPA recognition really happening
09:57 in the March quarter or the June quarter,
09:59 and that the results are yet to be seen,
10:02 but clearly
10:03 the expectation is that that will
10:05 definitely have.
10:06 An impact.
10:07 The other thing that was permitted
10:10 by the Reserve Bank was a one-time restructuring
10:13 of accounts without calling it a non-performing asset,
10:17 and that scheme has also benefited a lot of borrowers.
10:23 About 0.5% to 0.8% is the expectation of clients who availed
10:29 one-time restructuring.
10:31 Having said that,
10:32 now we are seeing a second wave,
10:34 which is really worrying.
10:36 And,
10:37 uh,
10:38 unlike last time,
10:39 last year,
10:40 or where the
10:41 rural economy was very vibrant and buoyant,
10:44 uh,
10:45 combined with a good monsoon,
10:47 we don't know because we've this year because we're
10:50 seeing rural economy also reeling under the COVID impact.
10:54 And last year,
10:55 the rural economy sales in terms of tractors and many other farm equipments,
11:01 uh,
11:02 etc.
11:03 Uh,
11:03 was very,
11:04 very buoyant.
11:05 So some parts of the economy,
11:07 were very buoyant,
11:08 and that
11:10 ensured that,
11:10 you know,
11:10 it didn't translate into a large NPA for the banking system.
11:15 One has to see how the wave do,
11:17 how long it lasts,
11:18 and what kind of impact it has on the banking system.
11:23 Uh,
11:23 in terms of provision coverage ratio,
11:26 we see in India banks having a
11:29 Pretty decent provision coverage ratio,
11:31 of course,
11:32 that is excluding the NPAs which perhaps may come now,
11:36 but we had about public sector banks having a coverage of 65 to 68%
11:42 and private sector banks having 75 to 78%.
11:46 This was as of September 20th.
11:49 Uh,
11:49 so
11:50 the hope is that there is enough
11:52 buffer.
11:53 Also,
11:54 there were a few banks who had gone to
11:56 prompt corrective action by the Reserve Bank of India.
11:59 Uh,
12:00 a lot of those banks also.
12:02 are likely to come out.
12:04 So overall we see a much more robustness in the banking system
12:11 unless the wave really creates its own sets of issues.
12:16 We feel that there is a bit of resilience in
12:18 the financial sector that we see today in India.
12:22 Thank you.
12:28 Thank you so much,
12:28 uh,
12:29 uh,
12:29 Sarin.
12:29 Very,
12:30 very insightful,
12:31 uh,
12:32 description of the situation and the,
12:33 and the measures taken.
12:34 I remember,
12:35 I mean,
12:35 it was
12:36 actually one year ago,
12:37 one year and a couple of months ago
12:39 when everything started and we were thinking.
12:42 Uh,
12:42 what are the key things,
12:44 the key initiatives,
12:45 the key
12:45 policy initiatives that we could actually take in order to keep
12:49 the lights on,
12:50 to allow firms to be
12:52 survive,
12:53 uh,
12:53 this,
12:53 uh,
12:54 this,
12:54 uh,
12:55 uh,
12:55 this collapse of the economy,
12:57 and,
12:57 and there were two clear actions.
12:59 One,
12:59 the regulatory forbearance,
13:01 and now we have to,
13:02 uh,
13:03 start,
13:03 uh,
13:03 normalizing the situation and therefore to see what is
13:06 behind the books after the regulatory forbearance disappears.
13:09 And the second word.
13:10 The liquidity,
13:11 no,
13:11 the injection of liquidity
13:12 into the system to make sure
13:14 that actually those firms that were
13:16 in need of liquidity didn't,
13:18 and,
13:18 and were solvent,
13:19 uh,
13:20 didn't really,
13:21 uh,
13:21 collapse,
13:21 no.
13:22 So 22 decisions,
13:23 two measures that I,
13:24 I think were
13:26 very well understood.
13:27 We learned a lot from the global financial crisis
13:29 in that,
13:30 in that sense,
13:31 and,
13:31 uh,
13:32 and all the central banks and regulators in the,
13:34 around the world
13:35 uh implemented these two lines of action.
13:39 So,
13:39 uh,
13:39 uh,
13:40 Jonathan,
13:40 um,
13:42 You are the Chief Investment Officer of Bain
13:44 Capital Credit and co-managing partner of Bain Capital,
13:47 a global private investment firm
13:49 with approximately $120 billion in assets under management.
13:54 Uh,
13:55 given your firm's global reach,
13:57 you have been up front and center in
13:59 terms of observing and experiencing public support policies,
14:03 including liquidity support that I was mentioning before,
14:05 in numerous countries,
14:07 including India and many other emerging markets.
14:10 There has been a lot of liquidity,
14:11 as we,
14:12 as we,
14:12 as we mentioned,
14:13 injected into the financial systems during the recent crisis,
14:17 and the intent of many policymakers was to support companies
14:20 financially strained as a result of lockdowns and other containment measures,
14:25 but actually firms that were solvent and therefore they could
14:28 with some liquidity injection survive and keep the lights on.
14:32 So do you believe that funding has reached
14:34 its intended targets and that therefore this policy decision
14:39 has had
14:40 Good and positive outcomes.
14:44 Uh,
14:45 that is a very,
14:46 uh,
14:47 broad,
14:47 uh,
14:48 question because the answer is
14:50 yes and no.
14:51 Uh,
14:51 so,
14:52 uh,
14:52 but first,
14:53 I do want to extend our thoughts and prayers to everyone in India.
14:57 Um,
14:57 we've been,
14:57 uh,
14:58 in close contact with our colleagues there and know that it's
15:01 just an incredibly difficult situation and,
15:03 and everybody is,
15:04 is,
15:05 is thinking about India right now.
15:07 Um,
15:08 you know,
15:09 I think that there's several,
15:11 uh,
15:11 dimensions to your question.
15:13 There's first,
15:14 What have countries done for people
15:16 and what have countries done for companies?
15:19 And
15:20 while there are obviously the theory if you keep companies going,
15:23 you are helping people,
15:25 but I do think that
15:27 when the history is written,
15:29 the places that had the least friction in getting money out,
15:33 not surprisingly,
15:34 will be the places that
15:38 will have recovered faster,
15:40 will have
15:42 had less exacerbation of income inequality
15:46 and some of the negative things that have come out of this.
15:49 So
15:50 direct payments to people,
15:52 I think,
15:52 worked.
15:53 Now
15:53 that's not to say,
15:55 you know,
15:55 the US distributing PPP funds through banks was bad.
16:01 It just wasn't as good as it could be because
16:03 when you choose to go through an intermediary to distribute
16:07 money to try to save wages and things like that,
16:10 what you are doing is you are self you are self-selecting
16:15 people who already are banked.
16:17 And now if you trickle that through to less developed economies,
16:22 clearly fewer and fewer people are banked,
16:24 so we've been a proponent of direct payment.
16:28 And
16:29 even and direct targeted support where companies
16:34 can really be helped.
16:35 So whether that's
16:36 things that have been done for service industries,
16:38 things that have been done
16:40 for,
16:41 um,
16:41 you know,
16:44 you know,
16:44 national important national companies like airlines,
16:46 although
16:47 there's a,
16:48 you know,
16:48 how airlines have been treated across the globe has been different.
16:52 And what I think when you step back,
16:55 once you sort of had the patient in the emergency room,
16:58 however countries got money out,
17:00 whether it was wage protection in Europe,
17:02 PPP in the United States,
17:05 direct payments over in Asia,
17:08 and
17:09 Uh,
17:10 now you need to step back and say,
17:12 OK,
17:12 where are we?
17:13 What are we trying to accomplish,
17:15 and who,
17:16 who's going to come out of this?
17:17 Because there's 3 dimensions
17:19 on the employment side and on the business side,
17:21 which is true whether you're in an emerging market or a developed market.
17:25 You have to remember that there were companies
17:28 that were not doing great to begin with,
17:31 where,
17:31 um,
17:32 where,
17:33 um,
17:34 you know,
17:34 the pandemic has sort of put them over the edge.
17:37 There are companies
17:39 for whom
17:40 the pandemic has fundamentally changed
17:44 how they exist,
17:45 how they operate,
17:46 some for the better,
17:48 many,
17:48 many,
17:48 many for the worse.
17:49 And then thirdly,
17:50 there's companies that,
17:52 you know,
17:52 you need to get to the other side of the of the pandemic,
17:56 and this is different.
17:57 Geography by geography
17:59 in some places it's really important like in India where
18:03 you know we've invested in steel and some basic materials
18:08 versus in the UK where we've invested
18:11 in some service industries and restaurants or Australia
18:15 where we protected an airline,
18:18 but you have to do that analysis.
18:20 One of the issues that's going to come out
18:23 of this is
18:25 You know,
18:26 bad companies
18:27 need to,
18:28 you know,
18:28 companies that cannot compete anymore,
18:31 whose industries are fundamentally changed,
18:33 need to be
18:34 fundamentally changed,
18:36 and good companies with bad capital structures need capital and
18:40 advice to move forward in a brave new world.
18:44 and I think when people think about things like NPLs,
18:47 they think you get a portfolio of homogeneous
18:50 loans.
18:51 You go out there and you just put money in,
18:54 you buy them cheap and they all work.
18:56 And what really is needed,
18:59 particularly in India and Asia,
19:03 is a servicing infrastructure
19:05 that's able to
19:07 work on these loans on a granular basis and figure out how
19:12 How you know where these companies fall in these
19:15 three categories and how you're going to help them,
19:18 because that is ultimately what's going to help
19:20 economies recover and maximize employment.
19:23 It's not just about
19:24 writing off and relieving banks.
19:26 There's a very human toll to this,
19:28 and you want to.
19:29 Make sure that there's incentive not just to buy cheap
19:33 but to actually buy cheap and build.
19:35 And
19:37 lastly,
19:37 I would say that
19:39 as we move forward,
19:41 I think one of the biggest
19:43 hindrances
19:44 in the NPL space has been
19:47 To some degree,
19:48 perception in some degree reality
19:51 that the processes are not as well worked out,
19:56 particularly in emerging markets.
19:58 It's a little bit why when you think about how
20:01 how Europe you brought up earlier about Ireland and
20:05 And then Spain and Italy,
20:07 you know,
20:08 Ireland went really fast,
20:09 had a very transparent process.
20:11 People had faith in a government-run process.
20:14 Then it went to Spain.
20:15 It took Italy a little bit longer,
20:17 but the NPL space in Italy now is very trusted.
20:21 There's a very routinized way of doing it,
20:24 and that's what it takes.
20:26 You talk about public-private partnerships.
20:29 You need to have faith that
20:31 things you're buying are documented.
20:33 The loans are what they say they are,
20:35 that the government is going to help run
20:38 very fast processes,
20:39 and that you will be able to work out these loans in an efficient
20:43 and streamlined way because that's what it's going to take to rebuild economies.
20:47 So to go back to
20:50 where you started,
20:51 I think that
20:53 early on
20:54 payments,
20:55 however you got them to businesses or people when we were in
20:58 the middle of an unprecedented crisis was the right thing to do.
21:01 And now that we're now working through the debt on companies in a granular basis,
21:07 we need to make sure that
21:09 we are optimizing the long term.
21:13 The long-term,
21:14 um,
21:15 uh,
21:16 uh,
21:16 structure of,
21:17 of
21:18 the industries that these loans are in
21:20 to make sure that employment's being
21:22 maximized and recoveries are being maximized.
21:26 Thank you.
21:27 Thank you,
21:27 Jonathan.
21:28 We will definitely come back,
21:29 uh,
21:30 later in the,
21:30 in the panel
21:32 in the morning to the forward-looking and,
21:34 uh,
21:34 and what else is,
21:35 is needed,
21:36 no,
21:36 to,
21:36 to,
21:36 to move in the right direction.
21:38 But actually,
21:39 you made my,
21:40 my,
21:42 my job today easy making reference to Italy.
21:43 So we have uh
21:45 Gianluca with us
21:46 uh today to,
21:47 to,
21:48 to also
21:49 Help us to understand what uh the Central Bank of Italy has done,
21:52 no,
21:52 and uh,
21:53 so yeah,
21:53 Luca,
21:54 you have been working with the Italian regulator,
21:56 uh,
21:57 Central Bank,
21:58 Bank of Italia for many years,
22:00 uh,
22:00 throughout the global financial crisis and its aftermath,
22:02 which was actually quite a different crisis at the end of the day,
22:06 uh,
22:06 but that also generated a significant volume of NPLs,
22:10 especially in Europe,
22:11 in South Europe.
22:13 Uh,
22:13 so regulators have the difficult role of designing and implementing,
22:16 uh,
22:17 policies,
22:17 uh,
22:17 during the crisis,
22:19 and,
22:19 uh,
22:19 because you are under pressure and it's not easy to take the,
22:22 the,
22:22 the right decisions and,
22:23 uh,
22:24 and to make sure that the,
22:25 your,
22:26 uh,
22:27 I would say the,
22:28 your targets are clearly defined and are the ones who
22:31 benefit from the decisions that you take in terms of,
22:34 uh,
22:34 of policy.
22:35 So my question to you,
22:36 Yan Luca,
22:37 first question to,
22:38 to kick off and open them.
22:40 Uh,
22:40 your,
22:41 your presentation or your,
22:42 your,
22:42 your,
22:43 your,
22:43 your
22:44 participation today
22:45 is,
22:46 uh,
22:46 what policies,
22:47 uh,
22:47 has the central bank as a regulator,
22:49 uh,
22:50 used during,
22:51 during the COVID pandemic
22:52 to support the financial sector and,
22:54 uh,
22:54 cushion the economic impact.
22:56 So what was different in this crisis?
22:58 That require different
23:00 uh uh measures compared to
23:02 what was uh decisions that were taken in previous crisis to deal with a
23:08 similar problem at the end of the day which is the increase of NPL.
23:10 So what was different in this case and what the Bank of Italy did
23:14 uh to,
23:14 to,
23:14 to adjust to that in different situation.
23:18 OK.
23:20 OK,
23:20 so I,
23:20 I,
23:21 I would say that the main difference is the urgency of the action to be taken.
23:26 Uh,
23:27 by the central banks,
23:29 by the regulators,
23:30 and by the governments
23:32 because differently from the previous financial crisis,
23:35 this one related to COVID was surely more widespread
23:39 to every sector,
23:41 uh,
23:41 and to,
23:42 uh,
23:43 everyone in the,
23:44 every actors in the economy.
23:45 So,
23:46 uh,
23:46 we needed fast measures,
23:48 effective measures,
23:49 and,
23:50 uh,
23:50 um,
23:51 uh,
23:52 where possible,
23:52 coordinated measures
23:54 and on the coordination of I would like to make a point because
23:58 um you asked it of course uh the question on the measure taken by the Bank of Italy,
24:03 but
24:04 I have to say that the Bank of Italy does not take
24:07 measures in isolation because of the institutional setup of
24:12 the regulation and the supervision in Europe.
24:15 Um,
24:16 for banking regulation,
24:18 uh,
24:18 for banking supervision,
24:19 we are part of the single supervisory
24:22 mechanism coordinated by the European Central Bank.
24:26 Uh,
24:26 and because Italy is part of the union,
24:30 uh,
24:30 we,
24:31 uh,
24:31 are part of,
24:33 um,
24:33 for what concerned the regulation of the European Banking,
24:37 Banking Authority,
24:38 and on,
24:39 um,
24:40 Uh,
24:40 a broader view,
24:41 we are also part of Bank of Italy of the,
24:44 uh,
24:44 Basel Committee for Banking Supervision.
24:46 So
24:47 I will list
24:48 right now a series,
24:49 a series of measures,
24:51 uh,
24:51 on which the Bank of Italy has contributed,
24:55 uh,
24:56 on which the Bank of Italy has worked,
24:58 but
24:59 they were taken
25:00 by the ECB,
25:02 the EBA,
25:02 or the Basel Committee.
25:04 So,
25:05 and,
25:05 um,
25:06 I would say that,
25:07 uh,
25:08 the,
25:09 uh,
25:09 the main,
25:10 the main measures uh,
25:11 uh,
25:12 uh,
25:13 that come to,
25:13 that come to my mind
25:15 uh is uh the one of the ECB to uh basically uh limit the dividend distributions,
25:23 uh,
25:24 and,
25:24 uh,
25:24 the payment of variable remuneration to,
25:27 uh,
25:28 personal,
25:29 uh.
25:29 Um,
25:30 until September 2021 because of the,
25:33 of the crisis.
25:35 Uh,
25:35 another very important
25:37 coordinated measures taken by the Basel Committee was the deferral
25:41 of the several packages finalized
25:44 in the last,
25:44 uh,
25:45 few years,
25:46 uh,
25:46 the most important of which is surely the Basel 3 package
25:50 of 2017.
25:53 Uh,
25:54 and also the Bank of Italy contributed to the clarification given by the EBA
26:00 and the Basel Committee on how to treat
26:03 from a prudential point of view,
26:05 the several measures,
26:06 mainly the moratorium and uh,
26:09 uh,
26:09 the public guarantee
26:11 provided during the crisis by,
26:13 uh,
26:14 by various governments
26:16 in the world.
26:17 Um,
26:18 and,
26:18 um.
26:20 Uh,
26:21 I will not give you details on how,
26:23 uh,
26:24 these,
26:25 uh,
26:25 these measures,
26:26 uh,
26:26 uh,
26:26 are going to be treated,
26:28 but,
26:28 uh,
26:29 very,
26:30 very fast.
26:30 They are
26:31 treated in a favorable ways.
26:34 So,
26:34 uh,
26:35 the EBA and the BCBS clarified this.
26:38 Uh,
26:38 also,
26:39 the,
26:40 um,
26:40 uh,
26:40 the,
26:41 the,
26:42 regarding the,
26:43 uh,
26:43 OTC derivatives,
26:44 it was decided to defer for,
26:47 for at least for one year,
26:49 uh,
26:50 the requirement to have the initial margin and the variation margin,
26:55 uh,
26:55 on,
26:55 um,
26:56 uh,
26:57 on these,
26:57 uh,
26:57 derivatives.
26:59 Uh,
26:59 also,
27:00 very importantly,
27:01 the Bank of Italy and the ECB communicated to their banks that they can
27:06 Um,
27:07 operate below the level of the capital conservation buffer.
27:12 So basically,
27:13 uh,
27:13 they can operate below 10.5% of their,
27:17 uh,
27:17 set one capital.
27:19 Uh,
27:19 and also on,
27:21 uh,
27:21 uh,
27:22 the broader cyber,
27:23 um,
27:24 uh,
27:24 cyber risk,
27:25 uh,
27:26 uh,
27:26 perspective,
27:27 the Bank of Italy has asked the,
27:30 uh,
27:30 Italian banks to monitor the level of risk of their,
27:34 uh,
27:35 uh,
27:36 of its of its banks
27:38 and to be ready to implement the business continuity plan
27:42 and the disaster recovery plan in case of need.
27:45 And I closed this long list of uh measures saying
27:48 that the Bank of Italy has actively participated to the development
27:53 of a very important uh piece of regulation both at the BCBS and uh
27:57 uh in Europe.
27:58 The new
27:59 um
28:01 the new prudential rules
28:03 for the treatment of securitization of Of MPL exposures.
28:08 Uh,
28:08 the Bank of Italy has been a very active,
28:10 uh,
28:10 actor,
28:11 uh,
28:12 in the development of,
28:13 uh,
28:13 the entire package,
28:15 uh,
28:15 and I think that,
28:17 uh,
28:17 the result that we have obtained,
28:19 uh,
28:20 considered that the,
28:21 uh,
28:22 the new rules,
28:23 uh,
28:23 are in force in Europe since April 9th.
28:27 So the new rules will offer an additional channel for the dismissal of NPE by
28:33 uh EU banks because uh basically
28:37 um
28:38 you might go through the,
28:40 the channel of securitization.
28:43 Uh,
28:43 even without the recourse to public guarantees
28:46 like the GAX scheme in Italy because,
28:49 um,
28:50 mm,
28:51 with the,
28:52 with,
28:52 with the new framework,
28:53 you can obtain at least on the senior tranches of anti-securitization,
28:59 I would say very decent,
29:01 uh,
29:01 uh,
29:01 risk weight,
29:02 uh,
29:03 with risk weights compared to uh what you could have,
29:06 uh,
29:07 before this,
29:07 uh,
29:08 these amendments.
29:09 So,
29:10 The,
29:11 the,
29:11 the results would be
29:12 the possibility to go through
29:14 uh
29:16 securitization channel without
29:19 making requests to GAX that has a cost.
29:22 GAX is a good instrument,
29:23 but,
29:24 uh,
29:24 banks that that use the GAX have to pay,
29:28 uh,
29:28 a,
29:28 a fee for,
29:29 uh,
29:29 for its use,
29:30 so.
29:32 I,
29:32 I will come back to the GAX,
29:33 uh,
29:34 mentioned,
29:34 uh,
29:34 Gian Luca because it's an interesting one,
29:36 and I would like to get your views,
29:38 uh,
29:38 on how,
29:39 I mean,
29:39 from,
29:40 from
29:41 how this something similar could be thought or implemented in,
29:44 in different countries,
29:45 in different contexts like emerging markets or European economies,
29:48 but let me come back to that in a,
29:49 in a minute.
29:50 So I wanna now transition to a second bucket of questions,
29:54 uh,
29:54 uh,
29:55 more focus on the impact on the,
29:58 on those,
29:59 uh,
30:01 on how,
30:02 uh,
30:02 borrowers have really benefited from the policy decisions and the,
30:06 and the actions that they have been taken.
30:09 Uh,
30:09 to give you or to introduce the,
30:11 this,
30:11 uh,
30:11 uh,
30:12 these questions,
30:13 uh,
30:13 the World Bank has done a survey,
30:15 uh,
30:15 with a world survey,
30:17 uh.
30:18 Trying to understand
30:20 what was the impact of the crisis in different,
30:22 in different firms by size.
30:24 And actually,
30:25 35% of the micro enterprises
30:28 said that they have losses in 2020,
30:30 30% of SMEs and only 20% of large corporates,
30:34 which is something that we knew that at the end of the day,
30:37 this crisis was gonna or is having a bigger impact on the small firms,
30:41 micro firms,
30:42 small firms,
30:42 medium firms,
30:43 and to a lesser extent,
30:44 large firms.
30:45 But,
30:45 and many of the uh decisions or many of the,
30:48 of the,
30:49 of the actions are more focused on large corporates,
30:52 no,
30:52 uh which uh maybe they have also
30:55 uh uh better means to,
30:57 to deal with a situation like this one.
30:59 And,
31:00 so,
31:00 Sarin,
31:00 I would,
31:01 I would like to start with you,
31:02 you know,
31:02 and my,
31:03 my question to you is,
31:04 what has,
31:05 uh,
31:05 been the experience for India
31:08 in enabling a softer landing for the SME sector?
31:11 So how do you think
31:13 the SME or the SME.
31:16 can deal
31:16 with a situation like this one
31:19 and what can be done to see
31:21 a greater and bigger financial institutions participation
31:25 in this segment,
31:26 which is much more costly,
31:28 it's more difficult,
31:29 and sometimes it gets less attention for obvious reasons.
31:34 than a large corporate.
31:36 So how this has happened in India and what else could we
31:39 do or what else policymakers could do in order to increase the
31:44 uh link and the presence of financial institutions to solve the problems of SMEs in,
31:49 in a context like this one.
31:54 So in India,
31:54 MSME sector is a very big employer of people.
31:58 It employs about 110 million people
32:02 and accounts for about 48% of exports.
32:05 So it's a very big,
32:06 uh,
32:07 part of the economy.
32:09 And,
32:10 uh,
32:11 like I briefly touched upon what the government did was they,
32:14 uh,
32:16 in May last year,
32:17 they gave this emergency credit line guarantee scheme.
32:21 Uh,
32:22 it initially started for small enterprises with
32:25 turnover of $15 million but then the government
32:29 took it to about $67 million turnover,
32:33 and then they went on to exposure of $67 million.
32:37 So,
32:37 uh,
32:38 this scheme really worked very well because it
32:41 helped to bridge the cash flow mismatch.
32:44 And uh what the government said is that uh
32:47 20% of the borrowing of a customer,
32:49 incremental 20% is guaranteed by the government.
32:53 This scheme kept on,
32:55 um,
32:56 enlarging its scope,
32:57 and,
32:58 uh,
32:58 last few months they even enlarged it to
33:01 the hospitality sector,
33:02 tourism,
33:03 etc.
33:04 So about 26 odd sectors have benefited
33:07 from this scheme.
33:09 Um,
33:09 having said that,
33:10 I think,
33:11 uh,
33:11 given the second wave,
33:13 there will be some more,
33:14 uh,
33:15 handholding that will be needed of the sector.
33:18 Last year we saw the sector really benefit from this ECLGS scheme,
33:23 and,
33:24 uh,
33:24 all the cash flow mismatches,
33:26 uh,
33:26 you know,
33:26 gave us a boost of liquidity.
33:29 Uh,
33:29 so a cash flow mismatch,
33:31 whether for buying raw material or paying wages,
33:34 that kind of cash flow mismatch was met through the CCLGS scheme.
33:38 Uh,
33:39 we saw
33:40 the entire banking system saw about $33 billion offtake,
33:44 uh,
33:45 in the scheme,
33:45 and there's still some more
33:47 room to go because the government had put aside a much larger
33:51 allocation for the scheme.
33:53 Uh,
33:53 I think this round of the second wave that we are seeing,
33:57 it's a function of how long this wave lasts and what kind of impact it has.
34:03 Uh,
34:04 depending on that,
34:04 I think the government
34:06 will and Reserve Bank may need to give some more,
34:09 uh,
34:09 helping hand.
34:10 Uh,
34:11 last,
34:11 last month,
34:12 actually,
34:12 the government also,
34:14 uh,
34:14 enlarged the scope for affected sectors by saying that instead of 20%,
34:19 40%.
34:21 Uh,
34:21 will be guaranteed by the government,
34:23 which is again,
34:23 a,
34:24 a nice boost to the,
34:25 but that is for restricted sectors again.
34:28 Um,
34:29 we also,
34:30 uh,
34:31 uh,
34:31 last year saw the government giving instructions to the,
34:35 uh,
34:35 government entities to say that,
34:38 uh,
34:38 they should clear the receivables uh dues of MSME and
34:42 In a priority and also tax refunds were accelerated by the government
34:48 for corporates and particularly MSME.
34:51 One thing that is different in India compared to
34:54 other countries is that MSMEs lending to MSMEs is
34:59 mandated by the government.
35:01 Up to a particular amount of the advances,
35:04 and it's called priority sector lending and if a bank does not fulfill the required
35:11 number,
35:11 then you are forced to buy
35:13 uh
35:14 priority sector lending certificates which comes at a cost.
35:18 So to that extent in India,
35:20 MSMEs find themselves getting adequate finance provided,
35:24 of course,
35:25 their financials are,
35:26 uh,
35:27 something that the banks are comfortable with.
35:29 So the sector does find um uh sort of
35:33 banks do lend to this sector in a very,
35:36 very active way,
35:37 including our own bank.
35:39 The other thing the government has done is,
35:41 uh,
35:41 for the very small MSMEs,
35:43 they've announced something called pre-pack insolvency,
35:46 which is prepackaged,
35:48 and
35:49 to that extent also it ensures that it doesn't go through any.
35:54 Long drawn uh litigation or it doesn't go through the
35:58 insolvency courts,
35:59 etc.
36:00 but it's a prepackaged kind of restructuring that has just been announced.
36:05 The other thing that happened last year was there was a one year suspension,
36:10 uh,
36:10 of insolvency proceedings.
36:12 So that also helped
36:14 the MSME sector uh protect the MSME sector.
36:18 So,
36:18 uh,
36:19 I would say a lot of.
36:22 These initiatives did help.
36:24 We have to now again,
36:25 I guess,
36:26 uh,
36:26 in the 2nd wave,
36:27 look at
36:28 a fresh helping hand to the sector.
36:30 That's what I feel
36:32 will need to be done.
36:36 Fully Ari,
36:37 thank you.
36:37 Thank you,
36:38 Celine.
36:38 Um,
36:39 and,
36:39 uh,
36:40 and hopefully this will also,
36:41 uh,
36:41 we will create also incentives and the,
36:44 I would say,
36:45 and the,
36:46 uh,
36:46 and the policies uh to
36:48 allow and to incentivize financial institutions to be also more present in the,
36:53 in the sector because they will be much needed,
36:55 not beyond the,
36:56 the,
36:56 the public sector interventions,
36:58 but we need to leverage.
36:59 We need to,
37:00 to create,
37:01 to make sure that we create the right incentives,
37:02 huh.
37:03 Uh,
37:03 uh,
37:04 uh,
37:04 Jonathan,
37:05 uh,
37:05 coming,
37:06 uh,
37:06 from the investor perspective,
37:08 uh,
37:08 so COVID-19,
37:09 we know that it has had a huge impact or
37:11 will have a significant impact on the stress asset investing.
37:14 And my question to you also related to the uh size of the firms.
37:18 So how do you see the difference uh if the,
37:21 if the distressed borrower is a large corporate versus SME or a small corporate?
37:26 From an investor perspective,
37:27 how do you deal with the situation?
37:28 How do you deal with this market?
37:30 How do you differentiate between
37:31 uh between uh different uh type of uh firms based on the size that they?
37:38 Sure.
37:39 So,
37:40 you know,
37:41 this is an interesting cycle because
37:44 nobody did anything wrong,
37:46 different than 8,
37:47 where there was excess in the US in,
37:50 you know,
37:51 in subprime mortgages or,
37:53 you know,
37:53 lending standings standards dropped in Europe.
37:56 This is more akin to a natural disaster,
37:59 so it has impacted more people,
38:01 and there isn't a specific thing that you can target to fix.
38:06 Um,
38:06 so it is,
38:07 it is so broad,
38:08 um,
38:09 in our business.
38:11 We have found the best opportunities and the best
38:15 where we can have the most impact and,
38:17 and,
38:17 and invest for our investors and,
38:20 and work with companies
38:22 is the sort of mid,
38:24 mid-market to upper mid-market companies,
38:26 very,
38:26 very large companies
38:29 are either
38:30 going to be able to get through it themselves or they're going to need government.
38:35 Um,
38:36 you know,
38:36 government help,
38:37 Boeing,
38:38 American Airlines,
38:39 you know,
38:39 pick,
38:39 pick,
38:40 pick anything you want.
38:40 There's just not enough private money in the world
38:42 to be able to make a difference there.
38:44 And then on the
38:46 Very small businesses
38:49 where the
38:50 where the fix,
38:52 where if we bought an NPL portfolio that has a lot of SMEs in it,
38:56 some of the government programs have been helpful
38:58 as well as throughout the globe,
39:00 as well as
39:03 just being able to work with them and restructure their debt,
39:07 but
39:08 one of the other things you bring to a situation is talent,
39:11 not just money.
39:12 And when you have a portfolio of hundreds of SMEs.
39:14 There's only so much help you can be there.
39:17 So,
39:17 um,
39:18 what we will do in our,
39:20 in,
39:20 in our business is in an NPL portfolio,
39:23 we'll manage the SMEs um as a,
39:26 as a group and,
39:27 and see what we can do there.
39:29 We'll pick the lumpier positions
39:31 um or things backed by a lot of real estate that have hard assets,
39:35 um,
39:36 places where we can have impact,
39:37 and we will work on those and we'll put people against them.
39:40 Sometimes we'll have people literally go into the,
39:42 into the company.
39:43 Um.
39:45 And then,
39:46 and then seek out these mid-sized companies that fall between,
39:50 they're not big enough
39:52 to,
39:52 uh,
39:53 they're not too big to fail,
39:54 but they're not
39:56 so small that the government,
39:58 some of the government SME support helps them
40:01 and that they,
40:02 they need to have both a balance sheet restructured,
40:06 business planning.
40:08 Perhaps it's merging with another business,
40:10 um,
40:11 but bringing the full arsenal of what a firm like Bain Capital can do
40:15 to help these businesses reimagine their business model,
40:19 redo their capital structures,
40:21 and,
40:21 and,
40:22 and move forward strategically.
40:25 Um,
40:25 and as I said earlier,
40:27 you know,
40:28 you basically have seen companies that were in trouble before.
40:32 So that's a different problem.
40:34 Companies whose business model has changed and companies that
40:37 just need to get to the other side.
40:39 I think
40:40 um
40:41 an example of um
40:44 Some of the first companies that were in trouble before is when you look across China
40:49 because of the trade war,
40:50 because of a crackdown on some shadow lending,
40:53 there are a number of situations in China where,
40:57 where you saw
40:59 that they were going to need to be restructured anyway,
41:02 and the government wants that to happen,
41:04 but they want it to happen in a particular way and in a particular cadence.
41:08 So it's a little different than,
41:10 you know,
41:10 in the United States or the UK where you can
41:14 At your own choosing,
41:16 by
41:17 companies,
41:18 work with them,
41:19 and avail yourself of a Chapter 11 system.
41:22 In
41:23 in India,
41:24 as they've tried to reform,
41:26 they were just getting legs on the new bankruptcy process,
41:29 but this is a process that requires a court system to be functioning.
41:33 And right now the court system isn't functioning because of the pandemic,
41:37 obviously,
41:38 so it's a little harder,
41:40 but it is forcing,
41:41 and we did several things over the last couple of years where we were able to do
41:46 restructurings with mid-size enterprises
41:49 with promoters that were out of court,
41:52 and I actually think that's also very healthy,
41:54 you know,
41:55 people get very excited when
41:57 Various versions of Chapter 11 get implemented across the globe,
42:01 but you're always better off if you can avoid that.
42:04 Um,
42:05 and that's what we've been trying to focus on right now,
42:08 particularly in India,
42:09 is where can we make a difference
42:11 and not have to avail ourselves of a court system.
42:14 OK,
42:15 thank you very much,
42:16 you know.
42:17 Gianluca,
42:17 uh,
42:18 to close this uh second bucket of questions
42:20 you mentioned before,
42:21 the,
42:21 uh,
42:22 I don't know how you call it,
42:23 the GAXS uh GACS,
42:24 uh,
42:25 program,
42:25 how do you call it?
42:28 GAX,
42:28 they call it GAX GAX GAX,
42:28 OK.
42:30 The GAX program,
42:31 uh,
42:31 for all of you,
42:33 uh,
42:33 to know this is,
42:34 uh,
42:34 this is something that,
42:35 uh,
42:35 that Italy introduced in 2016,
42:38 I think it was,
42:39 right,
42:39 uh,
42:39 to provide,
42:41 uh,
42:41 to Italian banks.
42:42 So Italian banks can buy a guarantee from the Italian treasury
42:45 when packaging and selling NPLs,
42:47 and,
42:47 uh,
42:48 and it was decided or designed,
42:50 uh,
42:50 in a moment in which the volume of NPLs in Italy was very high,
42:53 €300 billion at that time.
42:57 Uh,
42:57 so I guess that it has been quite instrumental,
43:00 and,
43:00 but I would like to get your views.
43:02 So was it really so instrumental?
43:03 Was it really,
43:04 did it work?
43:05 And,
43:06 uh,
43:06 and if it did,
43:07 uh,
43:07 how this,
43:08 how do you see that this could be extended,
43:10 uh,
43:10 to this crisis as well,
43:12 and the other,
43:12 and,
43:12 and,
43:13 and also to other economies,
43:14 no?
43:14 So very briefly because I guess that this is a topic to
43:18 Discussed and uh long and,
43:20 uh,
43:20 and deeper,
43:21 uh but we would like to get your views on how did it work and how effective.
43:28 So,
43:28 um,
43:29 basically since,
43:30 uh,
43:30 2016 when it,
43:33 when it was first introduced,
43:35 so the,
43:35 the scheme works like this,
43:37 uh,
43:37 a banks uh
43:38 to a vehicle it's bad loans portfolio.
43:43 Uh,
43:44 uh,
43:44 then this vehicle,
43:46 uh,
43:47 issues,
43:47 uh,
43:48 securitization tranches,
43:50 and,
43:50 uh,
43:50 on,
43:51 uh,
43:51 uh,
43:52 on,
43:52 um,
43:53 on the senior tranche,
43:55 uh,
43:55 basically the bank buys,
43:57 uh,
43:58 uh,
43:58 government guarantees
44:00 price,
44:00 of course.
44:02 Um,
44:02 so how it worked,
44:04 um,
44:04 so far,
44:05 uh.
44:07 Uh,
44:08 since 2016,
44:10 uh,
44:10 the GAX have been used on,
44:12 uh,
44:13 uh,
44:13 portfolios of bad loans amounting
44:16 in gross book value,
44:18 uh,
44:18 to €74 billion.
44:22 So if you consider that
44:24 bad loans only in 2016 were around
44:28 uh €200 billion in Italian bank's balance sheet.
44:35 Uh,
44:35 you can understand the impact of GAX,
44:38 uh,
44:38 on the reduction of,
44:40 uh,
44:41 NPL ratio of,
44:42 of,
44:43 uh,
44:43 of banks.
44:44 So it has been a,
44:45 a very successful instrument and it,
44:49 I,
44:49 I,
44:49 I,
44:49 I think that it,
44:51 it helped to catalyze
44:52 uh the,
44:54 the,
44:54 the,
44:54 the attention of
44:56 investors worldwide on the
44:59 Italian market of uh
45:02 of uh MPE exposures.
45:04 So,
45:05 uh,
45:05 it had a direct effect and the second round effect.
45:08 Um,
45:10 because,
45:10 uh,
45:11 uh,
45:11 I think that gaps accelerated also the other way banks used to dispose.
45:17 Uh,
45:18 their,
45:18 uh,
45:19 bad loans portfolios that is the direct sale,
45:22 uh,
45:23 to third-party investors without using the,
45:26 without using the GAX.
45:27 So I think that GAX focused the attention of these investors
45:31 on,
45:31 uh,
45:32 the opportunity,
45:33 uh,
45:34 uh,
45:35 that,
45:35 uh,
45:36 were available in Italy,
45:37 uh,
45:38 on,
45:38 uh,
45:38 the MPE's secondary market,
45:41 uh,
45:42 and,
45:42 um,
45:43 uh,
45:43 it was,
45:44 it was very,
45:45 I,
45:45 I have to say it was very effective.
45:47 Uh,
45:47 as of now,
45:48 uh,
45:49 there are no impediments for the use of GAX scheme,
45:53 also for the bed loans
45:55 that will arise in the future,
45:58 uh,
45:58 because of the COVID pandemic.
46:00 So,
46:01 the GAX can be,
46:02 uh,
46:02 used,
46:03 uh,
46:04 directly.
46:05 Uh,
46:06 actually,
46:06 the,
46:07 the,
46:07 uh,
46:07 the scheme is going to expire,
46:09 but it will be renewed,
46:11 uh,
46:11 uh,
46:12 for another years and there are no projects to stop it.
46:16 OK.
46:17 So it will renewed,
46:18 uh,
46:18 year by year by year for the next,
46:21 uh,
46:22 uh,
46:23 for the next future.
46:24 Uh,
46:25 so yes,
46:26 it,
46:26 it will be used also for,
46:28 uh,
46:29 bad loans coming from,
46:31 uh,
46:31 the COVID-19,
46:32 but
46:33 it has to be clear
46:35 that it has to be used to be,
46:37 for bad loans.
46:38 Uh,
46:39 we are in a gone concern perspective.
46:42 Uh,
46:44 NPEs,
46:45 uh,
46:46 uh,
46:46 are not,
46:47 basically,
46:48 uh,
46:49 um,
46:50 does not consist only of bad loans but,
46:52 uh,
46:53 also consists of unlikely to pay loans.
46:57 In both cases,
46:58 we are in the
46:59 non-performing environment,
47:01 but
47:02 Uh,
47:02 when you look at the,
47:03 uh,
47:04 unlikely to pay,
47:05 you have,
47:06 you,
47:06 you still are in a going concern perspective.
47:10 So there,
47:11 uh,
47:11 uh,
47:12 you don't need to liquidate the position.
47:14 There are actions,
47:16 uh,
47:16 that the management,
47:18 that the managers of this position can take
47:21 to try to restore the,
47:23 uh,
47:24 performing status of the positions.
47:26 Um,
47:28 and there are,
47:29 um,
47:30 There is the possibility to provide new credits to,
47:33 uh,
47:34 to,
47:34 to,
47:35 to debtors that deserves,
47:37 uh,
47:37 that deserves these credits and that they are in non-performing status,
47:42 uh,
47:42 only because of temporary difficulties
47:45 and that true,
47:46 uh,
47:46 the proper,
47:47 the proper management can,
47:49 uh,
47:49 can come back to a performing status.
47:52 So I would say that G GAX is useful but it's not the best instrument for UTP.
47:57 If it can be used abroad.
48:00 Uh,
48:00 maybe yes.
48:01 Uh,
48:02 um,
48:02 I think that,
48:03 uh,
48:04 there has been,
48:04 uh,
48:05 um,
48:06 uh,
48:06 already an example of imitation in Greece.
48:09 So the,
48:10 the Greek government has basically copied
48:13 the,
48:14 uh,
48:14 the,
48:14 the GAX,
48:15 uh,
48:16 the GAX rules and,
48:17 um,
48:18 And,
48:18 uh,
48:18 regulations
48:20 and I know that,
48:21 uh,
48:21 something is happening in Portugal and maybe,
48:25 uh,
48:25 in Spain,
48:26 but,
48:26 uh,
48:27 I,
48:27 I'm not,
48:28 I'm not sure on,
48:29 uh,
48:29 on what's happening in Spain.
48:31 I know that,
48:32 uh,
48:32 governments are interested in the tool but nothing concrete.
48:36 Uh,
48:37 the key is the fiscal capacity as well to,
48:38 to
48:40 provide a measure like this one in many emerging markets.
48:44 Well,
48:44 the fiscal capacity,
48:46 we,
48:46 we,
48:46 we hope that no,
48:48 uh,
48:48 or a very minor part of the guarantee provided through
48:53 GX,
48:53 uh,
48:54 will be enforced in the future.
48:57 Uh,
48:57 as of now,
48:57 we have several indicators.
49:00 Uh,
49:00 several indicators that are very,
49:02 uh,
49:03 good in saying that,
49:04 uh,
49:05 uh,
49:05 hopefully,
49:06 uh,
49:06 nothing will happen in the next 5 or 6 years,
49:10 so.
49:11 OK.
49:12 Thank you,
49:13 Yan Luca.
49:13 I will come back with another
49:15 concrete question now that we are moving to the future,
49:18 no,
49:18 and,
49:19 uh,
49:19 and,
49:20 and I would like to ask uh one question to each of you
49:24 on uh what else can be done,
49:26 or how do you see things,
49:27 uh,
49:27 coming?
49:28 So maybe starting with you,
49:29 Jonathan,
49:30 now,
49:30 uh,
49:31 a very concrete question,
49:33 no,
49:33 which is,
49:34 uh,
49:34 what do you think?
49:35 For all those policymakers that are watching this uh seminar today,
49:39 uh,
49:39 where do you think that policymakers,
49:41 uh,
49:41 should focus in terms of policy reforms
49:44 that would allow investors to invest
49:45 and provide liquidity to distressed borrowers?
49:48 If I am the policymaker of,
49:49 uh,
49:49 whatever country in Asia or in Africa or in Latin America or Eastern Europe,
49:54 where do you think I should focus?
49:55 What are,
49:55 what are the key
49:56 reforms that you believe are fundamental?
50:00 Flexibility,
50:01 partnership,
50:02 and uh discrete processes.
50:05 Um,
50:05 there have been a number of instances where in on some UTP loans in Italy,
50:10 for example,
50:11 where we've worked on in,
50:12 in Greece,
50:13 where we've worked on creative ways to work with
50:15 the bank to have them share in the upside.
50:17 Um,
50:17 the more confident we are,
50:19 um.
50:21 Um,
50:21 the more confident we are in the process and how it plays out,
50:25 um,
50:26 the more money we will put against an opportunity and the more will be a repeat.
50:30 And then,
50:31 um,
50:32 thirdly,
50:33 is
50:33 people
50:34 have to be encouraged to do it.
50:36 One of the things.
50:37 More in developed countries,
50:39 but happens everywhere is if you come in to try to
50:41 fix a bad situation and then it doesn't turn out,
50:44 suddenly you're the bad guy,
50:46 not the person who caused the situation or not that.
50:49 So we want to make sure that governments are encouraging this.
50:53 There are flexible
50:54 resolutions that the governments are supporting,
50:57 recognizing there's risk to it,
50:58 but there's also risk to doing nothing
51:00 and doing everything they can to get transparent
51:03 and efficient processes to work this stuff out.
51:07 Thank you,
51:07 very good.
51:09 Starting,
51:09 uh,
51:10 turning to concrete case,
51:11 India.
51:12 Uh,
51:13 so India took a very important,
51:15 uh,
51:15 or approved a very important,
51:17 uh,
51:17 a new code of insolvency and bankruptcy in 2016.
51:21 Uh,
51:21 which help out,
51:22 uh,
51:22 to resolve,
51:23 uh,
51:23 large,
51:24 uh,
51:24 cases,
51:25 uh,
51:25 but,
51:26 uh,
51:26 but there,
51:27 there is more than is in,
51:28 in a country like Kenya,
51:29 no.
51:29 So my question to you is,
51:31 what are some of the key challenges which still remain in the country
51:35 related to insolvency and resolution,
51:37 and where do you think
51:39 the
51:40 country should continue moving
51:42 in that direction in order to complement what was already
51:45 achieved with the new insolvency and bankruptcy code of 2016.
51:50 Yeah.
51:51 So the bankruptcy code was introduced in 2016,
51:55 but,
51:55 uh,
51:55 it was a new court.
51:57 So we saw,
51:58 um,
51:59 you know,
51:59 123 things that we saw.
52:01 One,
52:01 we saw that the capacity of the tribunals,
52:05 uh,
52:05 judges,
52:06 etc.
52:07 Is limited.
52:08 The second,
52:09 we found that uh obviously the court could not
52:12 think of all the possible issues and interpretations.
52:15 So we saw a bit of litigation
52:18 going right to the Supreme Court,
52:20 and
52:21 a lot of time got spent in that.
52:24 Uh,
52:24 so very few cases really got done in the
52:28 stipulated time frame of 270 days that was expected.
52:33 Um,
52:34 but having said that,
52:35 we did see quite a bit of,
52:37 um,
52:38 about 50 billion plus of
52:40 bad debts getting resolved
52:42 through the bankruptcy court.
52:44 But we also saw a lot of companies,
52:47 uh,
52:47 getting into liquidation because there were no possible buyers,
52:52 and
52:52 the code envisages that the existing promoter cannot
52:57 get
52:57 back the company,
52:59 so it has to be a change of management.
53:01 Um,
53:02 of course,
53:03 the kind of Ricardi that we saw in India is nowhere
53:06 comparable to what we see in Japan and other countries.
53:09 Uh,
53:09 India,
53:10 uh,
53:11 we have about 40% of Rekadi,
53:14 uh,
53:14 while in Japan,
53:15 it's 92%,
53:17 Singapore's 88%.
53:18 So clearly,
53:19 Uh,
53:20 I think,
53:21 uh,
53:21 as a country,
53:22 we need to look at what are the best practices and try and,
53:26 uh,
53:26 sort of implement that in India.
53:28 Um,
53:28 the other,
53:29 uh,
53:30 thing is that,
53:31 uh,
53:31 problem that we faced is that the number of lenders in large accounts was 30 and
53:37 at least 20,
53:38 if not 30,
53:39 and that also delayed the decision making.
53:42 So,
53:43 uh,
53:44 over time,
53:44 I guess,
53:45 uh,
53:45 the framework is getting evolved and also in this budget,
53:51 the government announced the setting up of a bad bank.
53:54 So the hope is that uh
53:57 The whole debt consolidation,
53:58 which was a big issue with
54:00 20 and 30 lenders,
54:02 will partially get resolved
54:04 through the creation of the bad bank,
54:06 which is
54:06 underway and will get implemented this year.
54:09 So the idea is that
54:11 it,
54:12 it will enable consolidation of debt and
54:15 better decision making to resolve stressed assets.
54:20 Thank you,
54:21 thank you very much,
54:22 uh,
54:22 uh,
54:22 Sarin.
54:23 I would,
54:23 I would love to ask you as well about Bangladesh,
54:25 uh,
54:26 and Nepal and,
54:27 uh,
54:28 what is this and Bhutan,
54:29 but I guess that we need a,
54:31 an,
54:31 an additional seminar to,
54:32 to go in that direction,
54:33 but I also would like to get your views on,
54:35 on,
54:36 on the other markets that you are in,
54:37 in charge.
54:38 Uh,
54:39 Gian Luca,
54:39 in
54:40 linking with your,
54:41 uh,
54:42 uh,
54:43 to,
54:43 to,
54:43 to your previous,
54:44 uh,
54:44 intervention
54:45 on trade guarantees and the possibility of not or not of,
54:48 uh,
54:49 uh,
54:49 executing the guarantee in a way,
54:51 uh,
54:51 um,
54:52 my question is
54:54 something.
54:54 That actually was
54:56 uh very much discussed at the beginning of the crisis,
54:59 no,
54:59 which was the role of the state.
55:01 If the state should consider becoming a shareholder
55:04 of uh travel firms,
55:05 no,
55:06 by converting debt into equity
55:08 in a context where probably what.
55:11 Where,
55:11 where there is a clear need in the market is a,
55:13 is a need for equity,
55:14 a need for capital.
55:16 Uh,
55:16 so my question to you is,
55:17 do you think that the state will,
55:19 uh,
55:20 be or should be considered,
55:21 uh,
55:22 becoming an asset holder and therefore to convert
55:24 this debt into equity in some specific terms,
55:27 uh,
55:27 uh,
55:28 going forward?
55:31 Um,
55:32 I would say that we don't need to reinvent the wheels in the sense that,
55:36 um,
55:37 uh,
55:38 the,
55:38 the state
55:39 in Italy at least already part,
55:41 uh,
55:42 as a shareholders of,
55:44 uh,
55:44 some strategic firms,
55:46 uh,
55:47 very large on uh some specific sector.
55:50 Uh,
55:51 on which
55:52 also before the crisis,
55:53 the state
55:55 had,
55:55 uh,
55:55 partnership or,
55:57 uh,
55:58 uh,
55:59 uh,
55:59 or participated to the capital
56:02 and during the crisis,
56:03 the state has provided new credits
56:06 to this firm and eventually if they are in difficulties,
56:09 the state can enlarge.
56:11 Uh,
56:11 its participation into the capital of these firms,
56:14 but this is a minor part
56:16 of the measure taken,
56:18 uh,
56:18 during the COVID-19.
56:20 During the COVID-19,
56:21 uh,
56:22 amongst guarantee and direct credit to SMEs and households,
56:26 uh,
56:26 the Italian government
56:28 put on the
56:29 €100 billion
56:32 of measures,
56:33 OK?
56:34 And,
56:34 um,
56:36 The majority of these are for micro and uh SMEs
56:41 and for households and on this,
56:44 uh,
56:45 in these cases,
56:46 it's not thinkable that the state become a shareholders,
56:50 uh,
56:51 looking at the media.
56:53 Small and medium enterprises
56:55 become shareholders for two reasons because
56:57 they are not strategic and also because
57:00 many of these firms are not publicly traded.
57:05 So it's also another difficulty.
57:07 So there is not anything like this in the,
57:10 in the,
57:12 in the project.
57:14 There are other,
57:15 other,
57:15 other means.
57:18 There are other means that uh that we are considering
57:21 uh through our um uh
57:24 public vehicles
57:25 to um to make more efficient
57:28 the,
57:28 the management of uh
57:30 of this position in the future.
57:34 Thank you,
57:35 Yan Luca.
57:36 OK,
57:36 so we have 2 more minutes and I wanna ask
57:39 one very quick and final question to each of you
57:41 which is,
57:42 we talk a lot about the new normal and how things will be after COVID-19,
57:47 no,
57:48 uh,
57:48 on many different dimensions.
57:49 On consumption,
57:50 and behaviors,
57:51 and the
57:51 uh personal relations,
57:53 social uh gathering,
57:54 many things,
57:55 no?
57:55 What about uh
57:57 risk management
57:58 and,
57:58 uh,
57:59 and distress assets?
58:00 Do you think that,
58:01 uh,
58:02 anything will be different
58:03 after COVID?
58:05 Do you think that any,
58:06 and we will,
58:06 I will start,
58:07 uh,
58:07 uh,
58:08 with,
58:08 uh,
58:08 with,
58:09 uh,
58:09 with you,
58:10 Sain.
58:10 Do you think that from a risk management perspective,
58:12 anything will change
58:14 after uh COVID and then we'll go to Jonathan and Cruz with uh.
58:20 I,
58:20 I would say,
58:21 um,
58:22 clearly,
58:22 uh,
58:23 there are two buckets of borrowers.
58:25 There are genuine borrowers and they are not so genuine borrowers.
58:29 Uh,
58:29 COVID
58:30 clearly was a situation where a lot of genuine borrowers got into difficulty.
58:35 If you take retail borrowers,
58:37 job loss,
58:37 etc.
58:38 medical uh issues,
58:40 etc.
58:41 So,
58:42 I don't think
58:43 the risk lens will change enormously post COVID,
58:47 of course,
58:48 because,
58:49 uh,
58:51 these were genuine cases.
58:52 They needed a helping hand.
58:53 They're not so genuine anyway.
58:55 The risk practices are evolving,
58:57 and they're sharp,
58:58 uh,
58:58 uh,
58:59 thanks to technology and AI,
59:01 etc.
59:02 We're able to do a lot of analytics
59:05 and sharpen our risk,
59:06 uh,
59:06 based approach of,
59:08 uh,
59:08 looking at sanctioning loans,
59:10 so.
59:15 I think that on risk management
59:19 you're exactly right.
59:21 I think that just like after 9/11,
59:24 just after
59:26 Enron and WorldCom,
59:28 the GFC,
59:29 the sovereign crisis in Europe,
59:31 we all have new branches on the tree that we now understand
59:35 can be affected,
59:36 but we also need to not overcorrect and.
59:39 Recognize that technology was able to do things and enabled
59:44 so many businesses and so many individuals
59:46 and consumers and educational institutions through this
59:50 that you need to think about different risks as well as different mitigates,
59:55 and that I think is in every geography in the world.
1:00:00 And uh looking at the risk management perspective,
1:00:04 uh,
1:00:04 I have to say that
1:00:06 the risk of pandemics is already one of the factors,
1:00:09 not that you have to consider in uh
1:00:11 uh in the credit risk and the in operational risk,
1:00:14 but I have the sensation that
1:00:16 no one took it
1:00:17 really seriously,
1:00:18 no,
1:00:19 and no one could think and imagine how broad a pandemic can be
1:00:24 and what will change,
1:00:25 so the new normal will be that pandemics will be
1:00:29 a risk that we
1:00:30 Will be taken more seriously in the future in the models of banks
1:00:34 and in the general uh risk management of banks
1:00:38 and also in the perspective of supervisors and the regulators.
1:00:45 OK.
1:00:46 Thank you very much,
1:00:47 uh,
1:00:48 colleagues.
1:00:48 Thank you,
1:00:48 Sarin,
1:00:49 thank you,
1:00:49 Jonathan,
1:00:50 thank you,
1:00:50 uh,
1:00:51 Gian Luca.
1:00:51 I think it has been a
1:00:52 fantastic,
1:00:53 uh,
1:00:53 panel,
1:00:54 very insightful.
1:00:55 It has been a pleasure to,
1:00:56 to,
1:00:57 to hear from the three of you,
1:00:59 uh,
1:01:00 three very different perspectives from where you sit,
1:01:02 but,
1:01:03 uh,
1:01:03 actually with quite similar,
1:01:05 uh,
1:01:05 uh,
1:01:05 vision on how to,
1:01:07 uh,
1:01:07 solve and how to approach,
1:01:09 uh,
1:01:09 this issue,
1:01:10 no,
1:01:10 a topic that will,
1:01:11 uh,
1:01:11 be there with us.
1:01:13 Forever because at the end of the day,
1:01:14 this is the nature of our,
1:01:16 of our financial system
1:01:18 and,
1:01:18 uh,
1:01:19 and,
1:01:19 uh,
1:01:19 and learning from each other and seeing
1:01:22 what can be done
1:01:23 from different countries,
1:01:24 from different players,
1:01:25 from different private and private sector participants.
1:01:28 It's really something
1:01:29 uh that we will all learn from and that what the World Bank Group is uh happy to
1:01:34 continue helping uh countries and clients in that
1:01:37 direction from the public and the private sector.
1:01:40 So thank you very much.
1:01:41 Thank you all,
1:01:42 uh,
1:01:43 for attending to this seminar and,
1:01:44 uh,
1:01:45 I hope you
1:01:46 enjoy it as I,
1:01:46 as I did.
1:01:47 Thank you again,
1:01:49 uh,
1:01:49 to our panels.
1:01:50 Have a very good day.
1:01:51 Thank you very much for having us.
1:01:53 Thank you.
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