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Restructuring non-performing loans for banking recovery: Private workouts and securitisation mechanism

7 November 2019 at 11:30 AM - 1:00 PM

Room 205b, Campus on Viale Romania, 32

Speaker: Andrea Miglionico, University of Reading

Abstract:

Resolving regimes of non-performing loans (NPLs) have raised concerns among supervisory authorities and banking regulators. NPLs play a central role in the linkages between poor lending and credit risks. This has implications for the management of asset quality and for the stability of the firm and the banking sector. A high stock of NPLs is undesirable to investors which can lead a decrease in the stock price, profitability loss and potentially to a distressed scenario. In the aftermath of the global financial crisis, the early resolution of NPLs requires coordinated insolvency proceedings and harmonised restructuring tools. The EU legislation introduced minimum loss coverage layers of capital for NPLs to address newly formed losses. The new supervisory toolkit implemented in the European banking union aims to improve the classification of asset quality and establish common practices to monitor non-performing exposures. This article argues that there is a need to introduce private solutions within the resolution of distressed loans – alternative to public support such as asset management companies and securitisation mechanisms – which in turn would make it more manageable to reduce the NPL on banks’ balance sheet.