Unlocking Asset Recovery: World Bank Report Reveals Key Practices in Serbia and Ukraine

The World Bank's recent report highlights effective strategies in distressed asset management and divestment by Deposit Guarantee Funds in Serbia and Ukraine. With transparent governance, structured sales, and clear asset valuation, the report underscores the importance of adaptive management practices in boosting financial stability and economic growth.

A recent report by the World Bank, Distressed Asset Management and Divestment Practices by Deposit Guarantee Funds in Serbia and Ukraine dives deep into the world of distressed asset recovery. The analysis highlights how Deposit Guarantee Funds (DGFs) in both countries are leading efforts to tackle the economic drag of non-performing loans (NPLs) while bolstering financial stability through adaptive strategies in asset divestment. By examining the strategies used by DGFs, this report offers a roadmap for countries grappling with economic strain from distressed assets.

The Impact of NPLs on Financial Stability

High levels of non-performing loans remain a financial risk globally, often reducing banks' ability to provide new loans and draining the economic momentum needed for growth. In Serbia and Ukraine, the national Deposit Guarantee Funds have pioneered practices that could be valuable lessons for global banking sectors managing financial distress. These practices emphasize adaptive governance, transparent sales frameworks, and strategic management, all of which foster stability.

Serbia’s Approach: Governance, Strategic Sales, and Legal Safeguards

In Serbia, the Deposit Insurance Agency (DIA) implemented a national strategy for NPL resolution starting in 2015. This plan empowered the DIA to structure large portfolios for sale, creating opportunities to boost Serbia’s underdeveloped NPL market. Clear governance structures and legal protections for agency staff helped foster a more efficient and proactive approach. Pilot sales played a significant role in refining the process, providing a valuable learning curve and boosting investor confidence. However, the report notes that Serbia still faced challenges, such as delayed litigation and outdated asset records, which affected overall asset value. Yet, by centralizing debtor data, the DIA managed to streamline management processes, enhancing efficiency in handling distressed assets.

Ukraine’s Path to Transparency and Structured Asset Sales

In Ukraine, the Deposit Guarantee Fund (DGF) has overseen NPL management since 2012, with a strong emphasis on transparency. Supported by the Prozorro.Sales platform, a digital auction system, Ukraine’s asset sales were organized to reach a broad base of investors, ensuring a competitive and transparent process. Although regulatory time constraints on asset sales sometimes reduced recovery rates, this system achieved higher returns in the earlier stages and improved operational transparency, setting an example for digital sales platforms in distressed asset management. The DGF’s approach revealed the potential of technology in transforming asset recovery and divestment, with streamlined processes that appealed to a broader investor base.

Key Insights: Governance, Transparency, and Balanced Asset Management

The report identifies several pivotal elements contributing to effective asset management and divestment, underscoring the need for robust governance frameworks. Governance practices are foundational, allowing institutions like the DIA and DGF to operate with clear mandates, autonomy, and protection for staff—a feature the World Bank highlights as critical for ensuring transparency and stability. The report further notes the importance of having a transparent sales process, as seen with Prozorro.Sales, which allows equal access to asset information and fosters competitive bidding.

Strategic asset management, particularly through phased sales and detailed asset information, enables these agencies to optimize returns. In Serbia, grouping distressed assets into portfolios created significant investor interest, while in Ukraine, targeted asset improvements boosted asset values before sales. Balancing asset improvements with timely divestment is essential, especially under time-bound frameworks, as it can optimize returns without burdening the system with prolonged sales timelines.

Recommendations for Future Asset Management Practices

The World Bank report provides a suite of recommendations for agencies worldwide tasked with managing distressed assets. These include maintaining sound governance, creating comprehensive sales strategies, and leveraging online platforms to expand the investor base. Transparency remains a core pillar, as clear and open access to asset information can minimize "price gaps" and increase recovery rates. Pilot projects also stand out as effective tools for countries new to distressed asset sales, offering learning experiences that prepare agencies for large-scale portfolio divestments.

The report concludes that while Serbia and Ukraine’s DGFs have different approaches, both emphasize that managing and divesting distressed assets professionally and transparently can play a transformative role in strengthening financial markets. For other nations facing similar economic challenges, adopting these practices could lead to more resilient financial systems and improved economic stability.

Published by the World Bank, Distressed Asset Management and Divestment Practices by Deposit Guarantee Funds in Serbia and Ukraine stands as a valuable resource, spotlighting Serbia and Ukraine’s strategies as guideposts for global financial resilience.