non--performing loan
CHAPTER 1
INTRODUCTION
1.1
Non-Performing Loans(NPLs)
Non-performing loans (NPLs) can be defined as defaulted loans, which banks
are unable to profit from. Usually loans falls due if no interest has been paid in 90 days, but this may vary between different countries and actors. Defaulted loans force banks to take certain measures in order to recover and securitize them in the best way. (Ernst & Young, 2004) and there also the definition of impaired loans is loans that have not expired, but it is uncertain whether the borrowers could repay their debts. Generally banks and other credit institutes do not class them as potential non-performing loans and therefore calculate with little or no loss provision from them. (Ernst & Young, 2004)
The issue of non-performing loans (NPLs) has gained increasing attentions in the last few decades. The immediate consequence of large amount of nonperforming loans in the banking system is bank failure. Many researches on the cause of bank failures find that asset quality is a statistically significant predictor of insolvency (Dermirgue-Kunt 1989, Barr and Siems 1994), and that failing banking institutions always have high level of non-performing loans prior to failure.
The banking crises throughout the world have contributed to ineffectiveness in the financial systems and have in some countries, depending on the effects, put a delay in the economic development. With the huge amounts of Non Performing
Loans (NPLs) on bank balance sheets, many countries have established public asset management companies that manage the disposal of defaulted loans. Today, markets are more open and many of these public companies have become privatized. As a result of above, many Asset Management Companies (AMCs) have entered markets where they can see potential profits in handling non-performing loans. 1
The first non-performing loans occurred in the USA in 1987 after that one of the most severe financial crises hit
INTRODUCTION
1.1
Non-Performing Loans(NPLs)
Non-performing loans (NPLs) can be defined as defaulted loans, which banks
are unable to profit from. Usually loans falls due if no interest has been paid in 90 days, but this may vary between different countries and actors. Defaulted loans force banks to take certain measures in order to recover and securitize them in the best way. (Ernst & Young, 2004) and there also the definition of impaired loans is loans that have not expired, but it is uncertain whether the borrowers could repay their debts. Generally banks and other credit institutes do not class them as potential non-performing loans and therefore calculate with little or no loss provision from them. (Ernst & Young, 2004)
The issue of non-performing loans (NPLs) has gained increasing attentions in the last few decades. The immediate consequence of large amount of nonperforming loans in the banking system is bank failure. Many researches on the cause of bank failures find that asset quality is a statistically significant predictor of insolvency (Dermirgue-Kunt 1989, Barr and Siems 1994), and that failing banking institutions always have high level of non-performing loans prior to failure.
The banking crises throughout the world have contributed to ineffectiveness in the financial systems and have in some countries, depending on the effects, put a delay in the economic development. With the huge amounts of Non Performing
Loans (NPLs) on bank balance sheets, many countries have established public asset management companies that manage the disposal of defaulted loans. Today, markets are more open and many of these public companies have become privatized. As a result of above, many Asset Management Companies (AMCs) have entered markets where they can see potential profits in handling non-performing loans. 1
The first non-performing loans occurred in the USA in 1987 after that one of the most severe financial crises hit
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