Asian Development Bank (ADB) Publishes Report on NPL Trading Platforms

The Accuria CTO, Burkhard Heppe, was one of the main authors of the report working with a distinguished team of experts from the ADB and legal advisors from Lee & Ko, an international law firm based in Korea and Viet Nam. The report summarises the results of a second phase feasibility study that focused on legal, technical, and operational issues in building NPL trading platforms following up from the first phase feasibility study published by the ADB in 2022 called “Road Map for Developing an Online Platform to Trade Nonperforming Loans in Asia and the Pacific”.

In many countries, online Non-Performing Loan (NPL) trading platforms offer policymakers opportunities to develop efficient and transparent markets for NPL transactions. These platforms can simplify trading processes, address obstacles to smooth operations, and encourage larger investments from international investors. Considering these benefits, the ADB published the road map report in 2022 assessing the readiness of Asian countries for establishing NPL trading platforms. Building on insights from the road map, this current report delves into the technical, legal, and regulatory aspects needed to overcome challenges in setting up such platforms. It examines specific country cases, including the Republic of Korea and Viet Nam, proposes a standardized data template, and provides guidelines for NPL trading platforms. The report aims to serve as a valuable reference for enhancing financial infrastructure and NPL markets in the region, and the proposed road map is intended to guide policy actions to strengthen regional NPL markets and improve financial stability.

To facilitate efficient and timely resolution of NPLs, the ADB and the International Public Asset Management Companies Forum (IPAF) have worked on a project to bolster Asia’s NPL markets through electronic trading platforms. These platforms aim to facilitate both domestic and cross-border transactions between IPAF members and other public and private investors across Asia and the Pacific. Information asymmetry, bid-offer gaps, and coordination issues currently hinder efficient NPL trading. Transaction platforms can mitigate these issues by enhancing transparency, encouraging broader investor participation, and addressing coordination challenges, thereby improving market liquidity. As part of the report, the ADB and IPAF propose an NPL transaction data template based on similar templates in Europe with several adjustments to the Asian region. The main results of the report and the data template for Asia have been presented at a recent training event.

The ADB report provides insights into the characteristics, best practices, and general design principles of NPL transaction platforms. It categorizes these platforms as either retail-focused or institutional, each serving different user bases and asset types. Platforms can be publicly or privately owned, subject to specific or general laws, and may focus on single assets or portfolios with varying transfer values. The core services of NPL trading platforms include facilitating transactions, offering data services, functioning as data hubs, providing ancillary services such as valuation tools, and supporting payment and settlement processes.

The report outlines good business practices for NPL platforms, emphasizing compliance with legal standards and market conventions. It discusses essential activities for a successful transaction process, including transaction structuring, data preparation, bidding processes, signing transfer documents, and pre- and post-auction activities. General principles for NPL trading platforms stress accessibility, transparency, data integrity, security, and support for critical execution steps such as user registration, data preparation, nondisclosure agreements, virtual data rooms for due diligence, auction execution, communication tools, help desk, and complaints procedures.