• NPL markets show diverse trends across regions: India at decade-low levels (2.8% gross NPL), Southeast Asia stable (2% NPL ratio), Southern Europe seeing slight increases (1.9% EU average), and Latin America experiencing significant growth (135% increase in Brazil since 2021). Opportunities vary, with India offering an "NPL supermarket" and Brazil seeing annual transactions of US$15-17 billion.
   
• Macroeconomic factors and regulatory environments significantly impact NPL markets. Global issues like declining inflation, potential interest rate cuts, and geopolitical conflicts influence market dynamics. Regulatory changes, such as the EU directive on credit servicing and Brazil's revised bankruptcy law, are reshaping investor access and opportunities across regions.
   
• Technology and AI are transforming NPL management and investment strategies. Rodolfo Diotallevi, doValue highlighted automation and data analytics improving efficiency in servicing and collection. AI applications are being developed for legal process standardization and improved client targeting. Guilherme Ferreira, JiveMauá emphasized AI's potential in creating solutions for chatbots, data analysis, and interpretation, with early adopters likely to gain significant advantages in the NPL market.

Hari Hara Mishra, Association of ARCs in India, provided an overview of the Indian NPL market:

• India is the 5th largest economy with a 7% growth rate
• NPLs at a decade-low: 2.8% gross NPL, net NPL below 1%
• Gross NPL of the banking system: approximately US$54 billion
• Most NPLs are corporate loans
• 5-10% of NPL stock comes to the loan sale market
• Average annual NPL transactions: US$3-4 billion
• Foreign investors acquire about US$1 billion annually
• Retail NPLs comprise only 15-16% of total NPLs in the market

Ivar Bjorklund, Collectius shared insights on Southeast Asian markets:

• Strong economic growth expected at about 5%
• Banking sector NPL ratio around 2%
• Fast-growing consumer finance market outside traditional banking sector:
  • Higher NPL ratios in alternative finance, but exact figures difficult to confirm
  • Includes “buy now, pay later” and FinTech lenders
  • These lenders can accept higher NPL rates due to higher interest and fees

Rodolfo Diotallevi, doValue provided an update on Southern European markets:

• Modest growth in NPLs despite economic volatility
• European banks' NPL ratios increased slightly from 1.8% to 1.9%
• Italy: NPL ratio increased from 2.5% to 2.8%
• Spain: NPL ratio increased from 2.8-2.9% to 3-3.1%
• Banks in strong positions after disposing of most NPLs
• Italy, Spain, and Portugal ahead in the NPL cycle
• Greece at a different stage:
  • Finishing large NPL sales, aided by a state program
  • Extension granted for smaller banks to complete disposals
  • Larger ticket sizes and more investor participation
• Italy and Spain
  • More tactical transactions with smaller ticket sizes (€200-300 million)
  • Focus on secondary market
  • Italy: €50 billion NPLs with banks, €250 billion with investors

Guilherme Ferreira, JiveMauá outlined the NPL market in Brazil and Latin America:

• 135% increase in NPL inventory since early 2021
• Approximately US$35 billion in NPLs up to 180 days past due
• Estimated US$150 billion total inventory of non-performing loans
• Corporate sector:
  • Over 2,000 bankruptcies in the current year
  • Five of the largest bankruptcies in Brazil's history occurred in the last 24 months
• Record-high provisions indicating banks have space for losses and sales
• Market becoming more liquid and sophisticated:
  • More players entering the market in the last five years
  • Independent servicers working for funds
  • Banks creating separate servicing divisions
• Annual NPL transactions between US$15-17 billion
• Brazil slightly ahead in the economic cycle:
  • Interest rates increased from 2% to 14% in 10 months
  • Rates have since decreased
  • Central bank expected to raise rates by 0.25% (as of the meeting date)

• NPLs can only be sold to Asset Reconstruction Companies (ARCs)
• ARCs have been in existence for 20 years, unlike temporary AMCs in other countries
• Foreign investors can set up their own ARCs with 100% equity stake
• Investors can also participate through foreign portfolio investment in specific transactions
• Insolvency and Bankruptcy Code (IBC) introduced in 2016 improved ease of doing business
• Government working on improving timely resolution of cases under IBC

• Regulations vary by country:
  • Thailand and Vietnam require setting up local AMCs, which can take over a year
  • Philippines introduced FIST companies for NPL acquisition
  • Indonesia doesn't have specific local AMC requirements yet
• Some countries allow foreign AMCs, while others require local partnerships
• Regulations can differ for real estate vs. consumer NPLs and for banking vs. non-banking sectors

• EU directive on credit servicing implemented in 2023
• Efforts to increase transparency through standardized EBA templates
• New regulations aim to protect borrowers and provide additional information requirements for lenders and servicers

• Relatively open market with no restrictions on foreign investors
• Banks have incentives (capital relief and tax advantages) to sell NPLs
• Well-established vehicles for NPL transactions (funds or securitization companies)
• Bankruptcy law revised in 2021, improving lender priority for DIP loans and allowing creditors to propose alternative plans

• Foreign investors have had good results with attractive returns since 2016
• Returns are attractive even after adjusting for dollar hedging
• India offers NPLs across all segments, described as an "NPL supermarket"
• Improved transparency and standardization of information for investors
• Mandatory disclosure of ARC performance data for the past 8 years

• Collectius specializes in consumer NPLs
• Early investments (2015-2017) yielded very good returns
• COVID-19 negatively impacted 2019 investments due to collection difficulties
• Performance is now picking up and the market is becoming more ready
• Returns are generally good, with some local competition
• Challenges include limited data availability and frequent changes in customer contact information

• Transactions have generally performed well
• Macro situation has caused market repricing
• Sellers need to be understanding when selling transactions
• Investors now have other opportunities due to higher interest rates
• Some investors may look to sell NPL positions if they've made adequate returns

• Open market for foreign investors with tax-efficient structures available
• Need to structure investments to avoid taxes on discount to face value and withholding taxes on distributions
• Recent bankruptcy reforms have improved investor protections and streamlined processes
• Hedging becoming possible for foreign investors in emerging markets:
  • Better curves and historic information allow for cash flow prediction
  • Hedging still expensive and imperfect, but popular with overseas investors
  • Hedged classes offered in recent funds

• Recent standardization of information processes and documentation
• Standardized model process flow, information checklists, and transaction documents
• Improved disclosure requirements for ARCs

• Data availability varies between sellers
• Challenges with customer contact information, especially in markets like Indonesia and Philippines

Rodolfo Diotallevi, doValue highlighted the importance of technology in servicing and collections:

• Automation of processes leading to increased efficiency and reduced FTE requirements
• Use of data analytics to identify patterns and focus on high-potential recoveries
• Development of direct access interfaces for debtors to manage and restructure their debts via mobile phones
• Creation of new products, such as software as a service, to support clients in risk management
• Use of technology in due diligence processes:
  • Reading and interpreting documents
  • Extracting information to accelerate due diligence
• Ivar Bjorklund, Collectius discussed technology adoption in emerging markets:

Ivar Bjorklund, Collectius discussed technology adoption in emerging markets:

• Collection per FTE still low in some markets
• Cost-effectiveness crucial for technology implementation
• Open-source solutions becoming more available
• Larger agencies have predictive data systems and standard tools
• Smaller agencies still more manual in their approach
• Data availability can limit technology efficiency

Rodolfo Diotallevi, doValue on AI implementation:

• AI is a relatively young concept in the industry
• Success depends on quality, availability, and amount of data
• Creating and feeding models with the right data is crucial
• AI applications being developed:
  • Standardizing legal processes
  • Automating legal documentation for clients
  • Analysing collection history to improve client targeting
• Implementation takes time and requires the right people and structure

Guilherme Ferreira, JiveMauá on the importance of AI:

• AI's importance cannot be overestimated
• Public AI tools (ChatGPT, Venice, Perplexity) demonstrate the power of AI
• AI will help developers create solutions for:
  • Chatbots
  • Data analysis
  • Data interpretation
• Client-facing AI solutions are limited due to fear of hallucinations
• AI adoption will provide significant advantages to early adopters

• Declining inflation
• Potential interest rate cuts
• Upcoming US elections
• Ongoing geopolitical conflicts
• Potential trade wars and protectionism

• Growth in buy-now-pay-later and FinTech lending
• Higher NPL ratios in alternative finance sector
• Potential over-indebtedness outside traditional banking sector

• Stress building up in unsecured loans
• Potential risk in commercial real estate sector

• NPLs at decadal low levels but may increase due to stress in unsecured loans and commercial real estate
• Potential increase in NPL accumulation due to expected credit loss provisioning

• Market becoming more ready for NPL transactions
• Performance picking up after COVID-19 impact

• Focus shifting to unlikely to pay (UTP) category and reperforming loans
• Increased attention on stage two loans (200 billion euros in Italy)
• Market repricing due to macroeconomic factors

• Continued growth in NPL inventory
• Market becoming more sophisticated with new players and services
• Brazil slightly ahead in the economic cycle, potentially impacting future NPL trends