Non-performing loans (NPLs) are typically defined as loans where borrowers are not making scheduled payments of either principal or interest within a specified period of time; normally 90 or 180 days. NPLs constitute a liability for bank institutions and require an organic strategy to deal with.
An assessment of both the internal and external environment, is required to build situational awareness and understand the bank’s resources to deal with the issue as well as the market’s interest towards NPLs.
The next step requires the establishment of qualitative and quantitative objectives for the short, medium and long term. Establishing SMART (Specific, Measurable, Attainable, Relevant, Timely) objectives is necessary to allow the development and deployment of a strategy. At this stage, key performance indicators must also be clearly established to measure whether, and to what degree, the objectives set up in the plan have been achieved or not.
Banks with more than 15% in NPLs are considered to have a high NPL position. A number of actions can be carried out to reduce the number of NPLs on a bank’s balance sheet. This could be done by offloading portfolios to buyers that have a risk policy that allows holding such instruments. Our experts have assisted clients in similar transactions in the past.
At Grant Thornton, we have significant capabilities and expertise to assist you in managing your NPL portfolios across their life cycle. Speak to one of our experts to understand how we can assist you.