Non-performing loans: Leveraging the right strategy to optimise your company’s balance sheet

The market for non-performing loans (NPLs) has been growing continuously over the past decade because credit quality has been deteriorating across the globe. While there have been positive signs in some markets, such as the EU as a whole, there are still some countries, such as Italy, Portugal and Greece, which are increasingly struggling with NPLs.

• This white paper aims to give you an overview of how you can assess and address your potential challenges relating to NPLs, from NPL strategy to operations, IT, people and change. We summarise our observations, experience and understanding of financial companies’ activities to optimise their NPL management. A key point is elaborating approaches to assess your NPL landscape (portfolio processes, KPIs, staff readiness, etc.), the subsequent NPL strategy design and its implementation.

• We outline our recent experiences with NPL actors in Europe, which have helped us gain a solid understanding of the needs of the NPL market and stakeholders’ expectations and how these interact and interdepend as well as how banks, and other market participants should approach NPLs. We extend the view beyond the simple management of NPLs to implications of current regulation (the European Central Bank’s guidance and IFRS 9) and how these create opportunities that can help institutions improve their overall business.

• We present potential solutions to the challenges of NPL, which we have gathered from our work. We lay out how well-defined quantitative and qualitative long-term objectives under appropriate portfolio segmentation and with specifically developed strategy options and early warning indicators (EWIs) as well as a decision tree for the strategy options and well-trained/experienced staff are all key elements to reduce NPLs successfully.

In this way, we hope to provide you some ideas to help you build expertise in your business to improve NPLs and general loan management. Implementing the suggested options (strategically and operationally) can increase profitability by means of a strategic NPL reduction accompanied by maximum recovery. We also point out the main risks of selecting the wrong strategy and how they can disadvantage your company. We present two case studies to help you understand what the risks are and how taking the right action can make a substantial difference. Finally, we link the NPL market’s and investors’ expectations to individual institution’s activities. This ties into the wider economic impact of the current NPL situation in Europe and the NPL market situation.

Read the full white paper here

Contact Us

Patrick Akiki
Partner
Advisory Partner
Tel. +41 58 792 2519
akiki.patrick@ch.pwc.com

Published by

Patrick Akiki

Patrick Akiki

Patrick Akiki
Advisory Partner
PwC
Birchstrasse 160
Postfach, 8050 Zürich
+41 58 792 2519

Patrick is leading the Finance Risk and Regulatory (FRR) group in Advisory at PwC Switzerland. He is supporting global clients in their finance, risk and regulatory transformation programs. Patrick has more than 15 years of experience supporting clients and their transformation programs.