Measuring the Recovery Performance of a Portfolio of NPLs

Abstract

The objective of the present paper is to propose a new method to measure the recovery performance of a portfolio of non-performing loans (NPLs) in terms of recovery rate and time to liquidate. The fundamental idea is to draw a curve representing the recovery rates over time, here assumed discretized, for example, in years. In this way, the user can get simultaneously information about recovery rate and time to liquidate of the portfolio. In particular, it is discussed how to estimate such a curve in the presence of right-censored data, e.g., when the NPLs composing the portfolio have been observed in different time periods, with a method based on an algorithm that is usually used in the construction of survival curves. The curves obtained are smoothed with nonparametric statistical learning techniques. The effectiveness of the proposal is shown by applying the method to simulated and real financial data. The latter are about some portfolios of Italian unsecured NPLs taken over by a specialized operator.

A Non-Performing Loans (NPLs) Portfolio Pricing Model Based on Recovery Performance: The Case of Greece

“…Emphasis on recovery and/or pricing is found in the work of Alihodžić and Ekşï (2018); Blanchard and Portugal (2017); Bolognesi et al (2020a); Chamboko and Bravo (2016); Orlando and Pelosi (2020); ; ; ; Bolognesi et al (2020b); Carleo et al (2023); Carpinelli et al (2017); Li et al (2022); ; Tupayachi and Silva (2022); Marouli et al (2015); Bellotti et al (2021); Calabrese and Zenga (2008); Ye and Bellotti (2019); Manz et al (2020); Wang et al (2021).…”