Non-performing loan

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A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as they reduce profitability. [1] They are often claimed to prevent banks from lending more to businesses and consumers, which in turn slows economic growth, although this theory is disputed. [2] [3]

Contents

In the European Union, the management of the NPLs resulting from the global financial crisis of 2008 has become a politically sensitive topic, culminating in 2017 with the decision by the European Council [4] to task the European Commission to launch an action plan to tackle NPLs. The action plan supports the fostering of a secondary market for NPLs and the creation of Asset Management Companies (aka bad banks). In December 2020, this action plan was revised in the wake of the COVID-19 pandemic crisis. [5]

Definition

Non-performing loans are generally recognised as per the following criteria: [6] [7]

Challenges and difficulties of resolving NPLs

In general, the management of NPLs is made difficult due to a variety of reasons:

Policy response and NPL management models

There are two main approaches for dealing with NPLs:

In practice, both approaches can be used simultaneously, as illustrated by the European Commission's action plan on NPLs, [11] [12] while some authors have argued that systemic crisis generally require a more centralized approach. [13]

Proactive measures to tackle NPLs include:

Non-performing loans in the context of the COVID-19 pandemic crisis

Although the 2020 has seen an actual decrease of non performing loans, the issue is expected to represent a major challenge for the banking industry in the post-COVID-19 era. [18] [19] [20] The ECB has warned that the amount of NPLs in the Eurozone could reach up to 1.4 trillions euros of bad loans, [21] however academic literature suggest the future rise of NPLs will be primarily driven by the pace of the economic recovery after COVID-19, and in particular the level of unemployment. In the context of the COVID-19 crisis, the deactivation of debt payment moratoria and tax deferral are also likely to cause an increase of NPLs. [22]

To prepare for the likely new wave of NPLs, the ECB Supervisory Board's chair Andrea Enria has proposed the creation of a European Bad Bank [23] [24] [25] and has imposed a ban on dividend distribution by banks, [26] in a move to pressure banks to proactively tackle NPLs. [27] The ECB has also indicated to work on the development of an "Amazon-style" platform to allow banks and investors to trade NPLs on a secondary market. [28]

Meanwhile the European Commission has revised its action plan in December 2020 [29] by focusing on speeding up the fostering of a secondary market for NPLs and to offer support for national Asset Management Companies. The proposal was met with criticism by civil society groups. [30] [31]

Non-performing property loans (NPPLs)

Non-performing property loans are found to lead to banking crises. [32] The need to identify the relationships between macroeconomic factors and NPLs had been crucial for governments and financial institutions to monitor the economy and undertake necessary policies or decisions to control and reduce the number of NPPLs in the financial system. The economic crisis caused by a rise of NPPLs in any particular country had been known to spread to other economies, as seen in the United States of America’s subprime mortgage crisis. During the sub-prime mortgage crisis, the ASEAN Economic Community (AEC) has gone through difficult periods of volatile NPPLs and the issue of NPPLs remains a major challenge amongst ASEAN member countries. Early research of NPLs was dominated by internal procedures and specific attributes of the lending banks in approving, controlling and monitoring the loans to ensure they remain active and not impaired. In recent years, research showed that property loans made up the highest percentage of NPLs in countries like Malaysia and US. [33] This had refocused research into the how macroeconomic conditions affect non-performing property loans.

See also

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References

  1. ↑ "Định nghĩa khoản vay không hiệu quả NPL". What is NPL?. 2023-06-28. Retrieved 2023-07-06.
  2. ↑ Angelini, Paolo (2018-04-12). "Non-performing loans and the credit allocation mechanism". VoxEU.org. Retrieved 2021-02-14.
  3. ↑ Schäfer, Larissa (2016). "Forgive but not forget: the behaviour of relationship banks when firms are in distress". www.ebrd.com. Retrieved 2021-02-14.
  4. ↑ "Council conclusions on Action plan to tackle non-performing loans in Europe". www.consilium.europa.eu. Retrieved 2021-02-15.
  5. ↑ "Action plan: Tackling non-performing loans (NPLs) in the aftermath of the COVID-19 pandemic". European Commission - European Commission. Retrieved 2021-02-15.
  6. ↑ "Clarification and Elaboration of Issues Raised by the December 2004 Meeting of the Advisory Expert Group of the Intersecretariat Working Group on National Accounts" (PDF). INTERNATIONAL MONETARY FUND. June 2005.{{cite journal}}: Cite journal requires |journal= (help)
  7. ↑ "What are provisions and non-performing loan (NPL) coverage?". European Central Bank - Banking Supervision. 2020-12-20. Retrieved 2021-02-14.
  8. ↑ "Bad debts make good profits - but what are the social costs?". openDemocracy. Retrieved 2021-02-14.
  9. ↑ "Vulture Funds in Ireland". Financial Justice Ireland. 2016-06-22. Retrieved 2021-02-14.
  10. ↑ "Credit servicers, credit purchasers and the recovery of collateral: Fostering secondary markets for non-performing loans (NPLs) and easing collateral recovery - Think Tank". www.europarl.europa.eu. Retrieved 2021-02-14.
  11. ↑ "Action plan: Tackling non-performing loans (NPLs) in the aftermath of the COVID-19 pandemic". European Commission - European Commission. Retrieved 2021-02-14.
  12. ↑ "Non-performing loans: vote on EU rules for selling NPLs to third parties". European Parliament. 2021-01-14. Retrieved 2021-02-14.
  13. ↑ Ayadi, Rym (2017). Carving Out Legacy Assets: A Successful Tool for Bank Restructuring? : Study. European Parliament. ISBN   978-92-846-0609-2. OCLC   1013925272.[ page needed ]
  14. ↑ "The Financialisation of Distressed Debts in Europe". Finance Watch. 2020-06-19. Retrieved 2021-02-14.
  15. ↑ Philipponnat, Thierry (2021-02-15). "Bail out people, not banks". Finance Watch. Retrieved 2021-02-15.
  16. ↑ "Utilizing AMCs to Tackle Eurozone's Legacy Non-Performing Loans". European Economy. 2017-07-05. Retrieved 2021-02-14.
  17. ↑ Bruno, Brunella; Lusignani, Giuseppe; Onado, Marco (2017). "Why We Need to Breach the Taboos on European Banks' Non-Performing Loans 56". European Economy. Rome (1): 113–121. hdl: 11565/3999448 . ProQuest   1933125268.
  18. ↑ Gual, Jordi. "The post-COVID-19 recovery: what challenges and roadmap for the banking industry?, SUERF Policy Notes .:. SUERF - The European Money and Finance Forum". SUERF.ORG. Retrieved 2021-02-14.
  19. ↑ World Bank, 2020, COVID-19 and Non-Performing Loan Resolution in the Europe and Central Asia region
  20. ↑ Ratnovski, Lev (2020-05-27). "COVID-19 and non-performing loans: lessons from past crises" (71).{{cite journal}}: Cite journal requires |journal= (help)
  21. ↑ Enria, Andrea (2020-10-12). "Interview with Handelsblatt".{{cite journal}}: Cite journal requires |journal= (help)
  22. ↑ Jakob De Haan, Non-performing Loans – Different this Time? NPL resolution after COVID-19, European Parliament, March 2021
  23. ↑ Enria, Andrea (26 October 2020). "ECB: the EU needs a regional 'bad bank'". Financial Times. Retrieved 2021-02-14.
  24. ↑ Carrascosa, Antonio (2020-12-22). "A European Bad Bank – a necessary tool for financial stability?". Single Resolution Board. Retrieved 2021-02-15.
  25. ↑ ""A bad bank must be part of our toolbox to solve banking challenges"". Il Sole 24 ORE (in Italian). 18 September 2020. Retrieved 2021-02-15.
  26. ↑ Bank, European Central (2020-12-15). "ECB asks banks to refrain from or limit dividends until September 2021".{{cite journal}}: Cite journal requires |journal= (help)
  27. ↑ Bank, European Central (2021-01-28). "ECB asks banks to address credit risk and improve efficiency".{{cite journal}}: Cite journal requires |journal= (help)
  28. ↑ Scuffham, John O’Donnell, Matt (2020-09-23). "Exclusive: ECB plots Amazon-style market to prevent Wall Street COVID debt swoop". Reuters. Retrieved 2021-02-15.{{cite news}}: CS1 maint: multiple names: authors list (link)
  29. ↑ "Coronavirus response: Tackling non-performing loans (NPLs) to enable banks to support EU households and businesses". European Commission - European Commission. Retrieved 2021-02-14.
  30. ↑ "European Commission's 'non-performing loans' plans to leave consumers vulnerable to 'vulture funds'". www.beuc.eu. Retrieved 2021-02-14.
  31. ↑ "Early Christmas for European banks: Public bailouts to become the norm again". Finance Watch. 2020-12-16. Retrieved 2021-02-14.
  32. ↑ Tham, Kuen-wei (2022). "Dynamic implications of GDP, interest rates, taxes, income, foreign direct investments, housing prices on property NPLs". International Journal of Housing Markets and Analysis. 15 (5): 1122–1144. doi:10.1108/IJHMA-07-2021-0078. S2CID   244229109.
  33. ↑ Tham, Kuen-wei (2021). "Non-Performing Property Loans and its Origination in the Real Estate Finance System". International Journal of Property Sciences. 11 (1): 35–59. doi: 10.22452/ijps.vol11no1.3 .
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