Upon the request of the European Parliament’s ECON Committee, a number of briefing papers entitled ‘Non-Performing Loans – New Risks and Policies?’ have been published this month. The management of non-performing loans is a controversial issue, as it entails dealing simultaneously with debtor-creditor relationships, banks’ financial health, and inter-country concerns of macro-prudential stability. The authors present several ideas that could help.
First, the possibility for state-owned or state-sponsored asset management companies (AMCs) to negotiate with disposing banks less discounted transfer prices (yet preserving AMC profitability) based on long term vs. short term value-creation objectives and less aggressive expected returns on capital (IRR).
Second, to ensure that AMCs can use open, competitive processes to enlist third-party expertise to aid servicing, recovery or restructuring efforts, or even real estate development when needed, and that contacts with public authorities are fluid, but also open and accountable.
Third, to explore the synergies between AMCs (that aid centralisation and learning economies) and mechanisms like securitisation (that use pooling and tranching to facilitate distribution). Fourth, to strengthen information gathering on the NPLs market, recovery rates and trends, with special attention to the social and gender impact, to make AMCs part of a broader, technically sound strategy that maximises economic value while bolstering social trust.
A number of authors commissioned by the ECON Committee have also examined what factors drive the performance of national AMCs, based on the existing literature and EU experiences of national AMCs created in the aftermath of the global financial crisis, and discussing the advantages and disadvantages of using AMCs, and the key elements in their design.
The papers are available on the European Parliament’s website.
Source: www.europarl.europa.eu