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Addressing the buildup of nonperforming loans (NPLs) in Italy since the global financial crisis will remain a challenge for some time and be important for supporting a sustained, robust economic recovery. The buildup reflects both the prolonged recession as well as structural factors that have held back NPL write-offs by banks. The paper discusses the impediments to NPL resolution in Italy and a strategy for fostering a market for restructuring distressed assets that could support corporate and financial restructuring.
High and persistent levels of nonperforming loans (NPLs) have featured prominently in recent financial crises. This book traces NPL trends during and after crises, examines the economic impact of high NPLs, and compares the effectiveness of NPL resolution strategies across economies in Asia and Europe. The book distills important lessons from the experiences of economies using case studies and empirical investigation of ways to resolve NPLs. These findings can be invaluable in charting a course through the financial and economic fallout of the coronavirus disease (COVID-19) pandemic to recovery and sustained financial stability in Asia, Europe, and beyond.
The coronavirus (COVID-19) crisis, which has hit financial systems across Africa, is likely to deteriorate banks’ balance sheets. The largest threat to banks pertains to their loan portfolios, since many borrowers have faced a sharp collapse in their income, and therefore have difficulty repaying their obligations as they come due. This could lead to a sharp increase in nonperforming loans (NPLs) in the short to medium term.
Sub-Saharan African countries are facing an unprecedented health and economic crisis that is likely to severely hurt credit quality and raise non-performing loans from already high levels. Banks have a critical role to play not only during the crisis by providing temporarily relief to businesses and households, but also during the recovery by supporting economic activity and facilitating the structural transformations engaged by the pandemic.
Europe’s banking system is weighed down by high levels of non-performing loans (NPLs), which are holding down credit growth and economic activity. This discussion note uses a new survey of European country authorities and banks to examine the structural obstacles that discourage banks from addressing their problem loans. A three pillared strategy is advocated to remedy the situation, comprising: (i) tightened supervisory policies, (ii) insolvency reforms, and (iii) the development of distressed debt markets.
According to a dynamic panel estimated over 1995 - 2008 on around 80 banks in the GCC region, the NPL ratio worsens as economic growth becomes lower and interest rates and risk aversion increase. Our model implies that the cumulative effect of macroeconomic shocks over a three year horizon is indeed large. Firm-specific factors related to risk-taking and efficiency are also related to future NPLs. The paper finally investigates the feedback effect of increasing NPLs on growth using a VAR model. According to the panel VAR, there could be a strong, albeit short-lived feedback effect from losses in banks’ balance sheets on economic activity, with a semi-elasticity of around 0.4.
The fundamental question posed by this book is why banks fail to maximize distressed loan collections where the distressed debt investor succeeds. The answer to this question is found in examination of the "Bank Arb. Trade"--the ability of sophisticated investors to uncover value, or arbitrage, in bank loan portfolios that the banks themselves simply miss or cannot realize.
Inhaltsangabe:Abstract: Recently business magazines and newspapers have reported regularely about settled NPL deals. NPL is the abbreviation for a non-performing loan and simply describes a situation in which the debtor stopped complying to the terms agreed upon with the lender. Depending on the specific credit terms, the borrower has to pay interest and to repay the principle at a certain time. If this does not happen at a specific time the lender will demand the debtor to stick to the agreed terms and finally, in the event that the debtor does not change his or her behaviour, terminate the underlying contract. At what specific point in this process the loan should be qualified as a non-performing loan is not standardized. The range of past due periods varies from 30 days, over 90 days, to even 180 days. Neither accounting rules nor supervisory law specify yet under which conditions a financial institution has to classify certain loans as non-performing loans. However, this will change with the enforcement of Basel II, and also thanks to international distressed debt investors which demand for global standards. From time to time financial institutions amass huge stocks of these loans which finally leads to a wave of NPL sales. The market for NPL s evolves and is active for three to five years. After resolving the stock of NPL s it breaks down and stays relatively inactive for a longer time before it might develop again. Beside this time-related feature, a geographic pattern can be detected. The market does not evolve at the same time all around the world, but moves from one country or economic zone to the other. Right now, Germany is the most active market in Europe. The question is why. The sale of NPL s belongs neither for mortgage banks nor for commercial banks to their ordinary business. On the contrary, these banks are selling part of their core business the credit business. Of course defaulting debtors are not the most attractive ones for banks, and therefore who would to question the bank that wants to get rid of them. On the other hand banks dispose of traditional instruments to deal with these customers. The work-out department is usually in charge of collecting receivables and also the transfer of the respective receivables to debt-collecting agencies is a long exercised practice among banks. Are these traditional means no longer able to deal with the indubitable tremendous stock on NPL s in German banks and will the outsourcing [...]
This book explores the macro-financial effects of central bank balance sheets, macro-prudential tools, and financial regulation in South Africa. How employment can be maximised while keeping inflation low and stable is examined in relation to the structural changes required to alter the composition of South African bank balance sheets. Quantitative methods and approaches are utilised to highlight the impact of suggested policies. This book aims to outline strategies and policy interventions that can help achieve the National Development Plan in South Africa. It will be of interest to researchers and policymakers working within development economics, African economics, development finance, and financial policy.
This paper assesses the vulnerability of emerging markets and their banks to aggregate shocks. We find significant links between banks' asset quality, credit and macroeconomic aggregates. Lower economic growth, an exchange rate depreciation, weaker terms of trade and a fall in debt-creating capital inflows reduce credit growth while loan quality deteriorates. Particularly noteworthy is the sharp deterioration of balance sheets following a reversal of portfolio inflows. We also find evidence of feedback effects from the financial sector on the wider economy. GDP growth falls after shocks that drive non-performing loans higher or generate a contraction in credit. This analysis was used in chapter 1 of the Global Financial Stability Report (September 2011) to help evaluate the sensitivity of banks' capital adequacy ratios to macroeconomic and funding cost shocks.