ASIA REGIONAL CONFERENCE ON NON-PERFORMING LOANS (NPL) RESOLUTIONS
April 24 @ 8:00 am - April 25 @ 5:00 pm
**This event is by invitation only. Please visit the event site for more information**
The regional conference is to disseminate good practices and exchanges of country experiences in the recognition, management, and resolution of NPLs which continue to burden many countries’ financial systems. Sharing country experience and case studies with NPLs resolution strategies reveals practical insights about the success factors of specific NPLs resolution strategies in the NPLs resolution toolkit. It allows Asian countries to learn from each other and to ensure that they deploy the most suitable resolution instruments, or a combination thereof to promote reform momentum and open opportunities for regional cooperation and collaboration among key stakeholders.
The conferences aim at bringing together relevant professionals from ASEAN, other East Asian and Pacific and South Asian economies, and select African and MENA countries, including:
- Active banking regulators and supervisors
- National authorities’ experts (eg. public AMCs and Deposit Insurance Agencies) to discuss the above-mentioned aspects of NPL resolutions.
The increase in NPLs is a conspicuous feature following a financial crisis or during periods of economic distress. This was evident following the Global Financial Crisis in US and Europe in 2008 and the East Asian financial crisis in 1997 where many countries were left struggling with high levels of NPLs. NPL overhang are also a consequence of poor regulatory and supervisory practices which suppresses the prompt identification, classification and reporting of NPLs. Persistently high levels of NPLs are a cause for concern as it hampers economic growth and is a threat to financial stability.
Finding a sustainable solution for NPLs has proven challenging as it typically requires a holistic approach and supported by a broad range of reforms. Some countries have been able to successfully tackle their problem assets but many others continue to face challenges. These challenges often relate to the absence of comprehensive corporate and insolvency frameworks, and shortcomings in the regulatory and accounting frameworks. At the same time, the unavailability of out of court restructuring arrangements, underdeveloped or inactive market to offload NPLs and the absence of strong leadership and assertive implementation of policies are impediments to a comprehensive push to resolve NPLs.
Recognizing the actual scale and scope of problem early is critical for policy action. Thus, recognizing a financial system’s exposure to problem assets is an important first step towards resolution. In recent years, international standard setting bodies have established guidance which promotes harmonization in regulation and standards to fostering consistency in calculating of NPLs as well as their reporting. Some countries have also conducted in-depth Asset Quality Reviews of their banks to enhance the transparency of banks’ asset quality, collateral valuation and related provisions. Given the different levels of development of the legal, supervisory and regulatory frameworks across countries, it is often a challenge to fully understand the scale and scope of the NPL problem, delaying policy action.
Resolving NPLs at systemic level is an arduous task and would require strong leadership from Government authorities to tackle this problem in a comprehensive manner. This is because it typically needs a system wide perspective rather than a bank by bank approach. It also will require the concerted efforts of several Government bodies/agencies, a coordinated and centralized response at the country level is thus often required. The public sector naturally leads the coordination function and it may have to tap into public funds to strengthen banks’ balance sheets and dispose of bad assets.
Authorities in various countries have used a range of instruments to resolve high NPLs over the years and it is important to take stock periodically learn from these experiences. Resolution tools range from bank specific measures (like bank restructurings, bad bank-good bank approaches, or bank specific asset management companies (AMC)) to system wide efforts (such as the creation of an AMC at the country level which is centrally managed by the authorities). Furthermore, several countries have also undertaken initiatives to development markets for distressed assets (e.g., through NPL securitization, managing sales through online platforms, etc) which can complement other Government efforts. Experience suggests that more than one resolution solution must be used, as different categories of weaknesses have to be tackled with the appropriate tools.
A well-functioning credit environment for debt resolution is critical to addressing the high NPLs successfully. Formal insolvency and bankruptcy proceedings are both lengthy and costly, and will impact recovery rates. Shortening court proceedings and improving the legal framework to ensure creditors have certainty when enforcing their claims, utilizing out-of-court arrangements as an alternative are some of the reforms that could improve recovery rates.
While there are a host of resolution options available, the feasibility of the selected option depends on a country’s economic and institutional situation. Reviewing these along with the status of the enabling environment can help us predict the chances of success of a specific resolution tool/ solution. For instance, the type of exposures that are non-performing, the legal and jurisdictional frameworks such as the insolvency framework, and the fiscal space for intervention prescribe why specific options can be more feasible for a specific situation compared to others.
The workshop will be jointly organized by Bank Negara Malaysia (BNM), the World Bank Global Research and Knowledge Hub in Malaysia (Malaysia Hub), the World Bank Financial Sector Advisory Center (FinSAC) in Austria and the World Bank’s Seoul Center for Financial Sector Development in Republic of Korea to bring together global expertise.
10, Jalan Perkarangan Tun Ismail,
50480 Kuala Lumpur