Books on the topic 'Non-performing loan'

This chapter compares the recapitalizations of the Japanese banking sector in the 1990s with those in the ongoing European debt crisis. The analysis points to four main policy implications. First, recapitalizing banks by insuring or purchasing troubled assets alone is not likely to solve the problem of banks’ weak capitalization, as this measure is not able to adjust the extent of the recapitalization to the banks’ specific needs. Second, the amount of the recapitalization should be based on actual capital shortages and not risk-weighted assets to avoid banks decreasing their loan supply. Third, banks should face restrictions regarding the amount of dividends they are allowed to pay out. Finally, banks must be induced to clean up their balance sheets and reduce the amount of bad (non-performing) loans to rebuild confidence in the European banking system.

The EBA Guidelines on loan origination and monitoring (hereinafter "GL LOM") undoubtedly represent a substantially new piece of the banking regulatory framework. In fact, for the first time, the regulator moves into a topic that was traditionally outside the scope of financial regulation, so far almost exclusively focused on aspects directly linked to both micro- and macro-prudential stability, notably through capital and liquidity management requirements and guidelines on Business Model and Internal Governance. The credit management process, and in particular loan origination and monitoring, has always been typically considered as a business issue under sole responsibility of banks, as it is considered one of the "core" processes (if not the "core" process) of the banking business. As a matter of fact, since the issue of the capital requirement regulation (i.e., Basel II and Basel III), and the introduction of the use requirements for the rating systems, the regulator moved very close, but not yet, to prescribe specific credit assessment criteria, while dictating methodological and organizational requirements for the authorization of the rating systems, and leaving substantial freedom to banks to define their own models and embedded assessment criteria and indicators. With the GL LOM, the regulator takes a further step, remarkably beyond its traditional remit, dictating principles and rules for the evaluation of the credit quality of borrowers. The starting point for this new approach from the regulator can be found in the ECB guidelines on Non-Performing Loans, later endorsed by the Bank of Italy Guidelines for Less Significant Banks, aimed at encouraging banks to define their NPL management processes and establish reduction plans to achieve NPL ratio targets in line with the regulator's expectations. Consistently with the focus on NPL, the regulation on Calendar Provisioning, amending the CRR was issued; as being a Regulation, it involves all banks, and not only significant ones (for which the ECB Addendum also applies). In addition, the new definition of default (the so-called "new Dod") has defined stricter criteria for the transition of exposures to the default status and also made the return of "cured" exposures to the performing status more difficult. The combined effect of these regulatory changes has been to make the default of counterparties not only more probable but also much more "expensive" for the banks. The natural “next step” of these regulatory changes was to "move backward" into the management process covering loan origination and monitoring . The EBA's stated objective with the issuance of the GL LOM is to define "robust and prudent" standards of lending practices so as to maintain a low level of NPLs in the future. Therefore, the focus of the GL LOM is the definition of requirements (some outlined as prescriptions, others in terms of principles) for the creditworthiness assessment of counterparties and for the management of the related data and information. Notwithstanding the fact that the Final Report has articulated the principle of proportionality much more clearly as compared to the Consultation Paper, the GLs set out three macro-categories of counterparties for which specific requirements are defined: • Individuals • Micro and small businesses • Medium and large companies. The GL LOM also provide recommendations about the valuation of guarantees both at origination and during ongoing monitoring, encouraging the use of advanced statistical models. The GL LOM focus on real estate guarantees, while financial collateral is outside the scope of the GL LOM. In the mind of the regulator, the GL LOM should not only reflect industry practices, but also incorporate the latest supervisory guidance on lending, and provide the stimulus to include ESG, AML/CTF and the use of innovative technologies into banking origination and, where applicable, monitoring processes.

This chapter proposes a comprehensive, pan-European way of addressing the issue of non-performing exposures. We contend that securitization is the most effective way for banks to sell the bulk of their troubled loans. To this end, we propose a numerical example to describe the main characteristics of a common scheme of securitization to be applied at the European level. Such a scheme, as a European blueprint for implementation at the national level, is meant to attract funds from a wide array of investors, with a public support compatible with the current rules on state aid.

Institute for Management and Business Research (IMBRe) is pleased to put forward this book which contains a compilation of business management case studies.The cases in this book are meant for teaching and learning purposes which could be used for both the undergraduate and postgraduate levels.In specific, the first case about Lang Buana Museums requires students to apply their knowledge of how to manage an entity in public sector with respect to its accountability, financial management and accounting to address the Museums problems in trying to improve the operation and financial conditions of the Museums. The second case about Regular Care insurance and Critical Care insurance requires students to apply their knowledge of insurance management and also financial management about time value of money (TVM) concept in making purchase decisions for different needs of medical care and for different premium payment terms.The third case about BFN Bank Berhad requires students to apply their knowledge of bank management with respect to commercial banks operations and its lending activities to come up with turnaround strategies in reducing the banks non-performing loans (NPLs) to enable the bank to generate high return. The fourth case about Langkawi Buffalo Park requires students to apply their knowledge of how to manage a farm to improve its performance with respect to management, marketing and finance by conducting SWOT analysis and re-establishing the length of time expected to break even.The fifth case about a small family business requires students to apply their knowledge of strategic management by performing SWOT analysis, explaining how business creates values under cost-leadership strategy, discussing the disadvantages of resource-based model and identifying exit barriers. The sixth and last case about Knots Group Café requires students to apply their knowledge of human resource management with regard to the recruitment, development (talent management) and retention of employees for business sustainability.