Prepared by Pedro Guizzo, Founding Partner, IVIX Value Creation
NPL LEVELS HAVE DECREASED DURING THE COVID-19 CRISIS BUT SHOULD SPIKE IN EARLY 2021.
Brazilian banks have reported lower levels of credit delinquency and there has been a decline in bankruptcy filings in Brazil until now.  This is the result of several measures taken by the country's authorities and other players to combat the harsh effects of the Covid-19 crisis. The end of government stimulus and the end of banks’ forbearances should finally show the harsh results of Covid-19 in the economy in the beginning of 2021.
AMONG THE MEASURES OF RISK MITIGATION FOR FOREIGN INVESTORS, THE MOST IMPORTANT ONE IS FINDING THE RIGHT LOCAL PARTNER.
When foreign investors enter the Latam NPL market they should mitigate their risk by; finding the right advisor, finding the right local partner, using FX hedging (at least for the mid-short-term), and keeping a global mindset.
RETURNS IN NPL INVESTING IN BRAZIL HAVE BEEN ATTRACTIVE AND CONTINUE TO IMPROVE AS THE MARKET IMPROVES.
There has been a very positive impact on returns as a result of a more stable and modern bankruptcy law environment.  Additional improvements in Brazilian bankruptcy law are expected to bring more power to creditors, thus improving returns even further.
TODAY, THERE ARE PLENTY OF SERVICERS FOR INVESTORS TO RELY ON.
The know-how is there and any increase in capacity demanded by a new NPL investor is easy to obtain.
A STRONG NEW DEVELOPMENT IN THE MARKET IS COMING FROM THE DEVELOPMENT OF TECHNOLOGY.
Local Servicers have been adopting new technologies which lead to improved efficiencies and ultimately, to better recovery rates and lower costs.

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