18 Dec 2022
Importance of sound NPL management for financial stability
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The COVID-19 pandemic has hit the global economy hard, although large fiscal stimulus programmes and accommodative monetary policies have thus far prevented a full-blown financial crisis. Nonetheless, the risk of a surge in non-performing loans (NPLs) remains across Asia and Europe especially as monetary policies start to normalise and loan moratoriums come to an end.
With the Asian financial crisis of the late 90s still fresh in the mind of policymakers in Asia, authorities are keeping a close eye on the accumulation of distressed debt among financial institutions and finding ways to ensure they are promptly resolved to ensure the stability of the financial ecosystem.
Large NPL stocks are problematic because of three key reasons. Firstly, bank resources are tied up by assets that tend to produce less income than initially envisaged or worst no income at all. Next, high stocks of NPLs usually indicate underlying solvency and debt overhang issues affecting both households and the corporate sector. Lastly, the high NPL stock gives rise to the prospect of regional financial instability and macroprudential concerns.
Drawing lessons from Europe for the swift resolution of NPLs in Asia, we believe there are three elements of a strategy that can help develop NPL markets and NPL resolution frameworks in Asia. These are supervisory efforts for NPL recognition and resolution, improving the legal and judicial system for debt enforcement, and relying on non-performing loan sales and bad debt management services for strategic loan relief mechanisms.
As a leading debt management firm in Asia, Collectius is seen as a trusted partner to financial institutions and regulators in the region. Through its various partnerships including the one with IFC, a member of the World Bank, Collectius is working to strengthen the financial ecosystem of the region by enabling financial institutions to manage bad debts so that they can focus on their core business.
To find out more on why NPL management is essential for financial stability, please click the button to download the whitepaper
The COVID-19 pandemic has hit the global economy hard, although large fiscal stimulus programmes and accommodative monetary policies have thus far prevented a full-blown financial crisis. Nonetheless, the risk of a surge in non-performing loans (NPLs) remains across Asia and Europe especially as monetary policies start to normalise and loan moratoriums come to an end.
With the Asian financial crisis of the late 90s still fresh in the mind of policymakers in Asia, authorities are keeping a close eye on the accumulation of distressed debt among financial institutions and finding ways to ensure they are promptly resolved to ensure the stability of the financial ecosystem.
Large NPL stocks are problematic because of three key reasons. Firstly, bank resources are tied up by assets that tend to produce less income than initially envisaged or worst no income at all. Next, high stocks of NPLs usually indicate underlying solvency and debt overhang issues affecting both households and the corporate sector. Lastly, the high NPL stock gives rise to the prospect of regional financial instability and macroprudential concerns.
Drawing lessons from Europe for the swift resolution of NPLs in Asia, we believe there are three elements of a strategy that can help develop NPL markets and NPL resolution frameworks in Asia. These are supervisory efforts for NPL recognition and resolution, improving the legal and judicial system for debt enforcement, and relying on non-performing loan sales and bad debt management services for strategic loan relief mechanisms.
As a leading debt management firm in Asia, Collectius is seen as a trusted partner to financial institutions and regulators in the region. Through its various partnerships including the one with IFC, a member of the World Bank, Collectius is working to strengthen the financial ecosystem of the region by enabling financial institutions to manage bad debts so that they can focus on their core business.
To find out more on why NPL management is essential for financial stability, please click the button to download the whitepaper
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