The effective management of non-performing loans will have a positive knock-on effect on lending to sound businesses, given that banks’ ability to extend new credit is closely linked with the smooth and timely repayment of existing loans.
The NPL management model to be chosen must: (a) not give rise to moral hazard; and (b) enable the identification of the most appropriate workout solutions and, where possible, ease the burden on cooperating borrowers facing temporary difficulties in servicing their debt.