Non-Performing Loans: Regulatory and Accounting Treatments of Assets

Bholat, David; Lastra, Rosa M.; Markose, Sheri M; Miglionico, Andrea; Sen, Kallol

doi:10.2139/ssrn.2776586

Cited by 13 publications

(4 citation statements)

References 48 publications

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“…This inefficiency was mainly caused by high non-performing loans because of adverse borrower 2 It may be argued that, instead of the non-performing loans (NPLs), the loan loss provisions are an alternative representation of the undesirable output in the model. Note, however, that the loan loss provisions are also calculated on the basis of non-performing loans (Bholat et al 2016). The previous studies employed non-performing loans as an undesirable output in measuring efficiency through directional distance functions.…”

Section: Resultsmentioning

confidence: 99%

Incorporating Credit Quality in Bank Efficiency Measurements: A Directional Distance Function Approach

Qayyum

Riaz

2018

JRFM

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The objective of the study was to measure the risk-adjusted efficiency of banks in 24 emerging economies for the period of 1999-2013. A two-stage network data envelopment analysis (DEA), with separate deposit mobilization and loan financing stages was used. Efficiency was measured using directional distance functions with DEA, featuring non-performing loans as undesirable outputs. The distributions of efficiency scores were different when credit quality was taken into account. The distribution of efficiency scores varied systematically with accumulation of non-performing loans across regions. The financial crisis of 2007-2008 impacted more adversely the regions that had higher proportions of non-performing loans in banks' portfolios. The results of a follow-on non-parametric regression showed that smaller, better capitalized, and private banks were more efficient. The conditions conducive for high levels of technical efficiency by banks were found to be characterized by economic growth and low inflation.Most previous studies used either the production or the intermediation approach to model bank efficiency.

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Section: Resultsmentioning

confidence: 99%

Incorporating Credit Quality in Bank Efficiency Measurements: A Directional Distance Function Approach

Qayyum

Riaz

2018

JRFM

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“…As a result, there is no universal definition of non-performing loans (NPLs). (Bholat, Lastra, Markose, Miglionico, & Sen, 2016) According to the Basel Committee (2016), non-performing exposures include all situations in which the debtor is 90 days overdue or is unlikely to pay its debts.…”

Section: Non-performing Loans Effect On Capital Adequacy Ratiomentioning

confidence: 99%

Factors effecting the Capital Adequacy Ratio of banking system of Bosnia and Herzegovina and Croatia

Alihodžić¹,

Nadžaković²

2022

Industrija

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The importance of minimum capital adequacy ratios in preventing banks from going bankrupt and losing depositor money is underscored by their ability to absorb a reasonable amount of losses. This work contributes to the literature on bank capital and, in particular, delivers a thorough analysis of bank capital in Bosnia and Herzegovina and Croatia contexts. This analysis refers to the strand of literature on non-performing loans and bank capital that has been of continuous interest to researchers. It is a relevant area of research because it discusses the most important part of the banking business, especially in the context of increasing global competition and crises. In this scientific area, we inquire whether and how leverage rate, gross domestic product rate, and return on equity affect the capital adequacy ratio. In this respect, this study advances the literature of effects on bank capital that have not been analysed by other scholarly contributions, especially as it discusses the impact of leverage rate, gross domestic product rate, and return on equity in the context of the entire banking systems of Bosnia and Herzegovina and Croatia. The study is limited to a six-year period from 2016 to 2021. Empirical evidence based on the application of a model suggests that both countries resulted in different correlations between countries. Modelling was done to determine the relationship between the independent variables LR, GDP Growth, ROE, and effect on CAR. In addition, the capital adequacy ratio proves to be more and more important for banks.

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“…Although the PRA has not explicitly provided guidance on non-performing loans, the EBA (2020b) has encouraged banks to make use of existing flexibility in its guidelines on the management of non-performing and forborne exposures and to engage in a close collaboration with their supervisors on these matters. There is no universal definition of a non-performing loans (Bholat et al 2016), although the ECB's approach is to treat loans past due for 90 days as non-performing (ECB 2017). This is suggested to be capable of flexibility.…”

Section: A Regulatory Package Aimed At Relief For Borrowersmentioning

confidence: 99%

Regulatory Suspensions in Times of Crisis: The Challenges of Covid - 19 and Thoughts for the Future

2020

Self Cite

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The Covid-19 crisis in 2020 severely impacted the corporate and in turn, the financial sectors of the UK, entailing responses from financial regulators to implement unprecedented regulatory suspensions that affect both the financial sector and the real economy. We argue that regulatory suspensions are a unique crisis management tool and give rise to certain concerns and implications. We offer two case studies in regulatory suspension that show how inherently flexible laws and regulations became an anchor for unexpected suspensions or adjustments in other regulatory provisions and laws. These create implications for rebalancing of regulatory objectives and distributive effects and also for incentivizing certain behaviours amongst affected constituents. These institutional implications may be temporary or have a longer-term effect, and we argue that there is a need for a robust and rational regulatory decision-making framework in relation to regulatory suspensions, as part of crisis management. We sketch the contours of such a framework which includes rational balancing of the cost and benefits of regulatory objective trade-offs, distributive effects and institutional implications. We advocate a broad and deep 'humanizing' approach to balancing cost and benefit in regulatory suspensions, drawing upon Sunstein's work. We also advocate a coordinated and inclusive procedural approach to crisis management, including regulatory suspension decisions, that would enhance regulators' preparedness and intuitive skill in this area.

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Non-Performing Loans: Regulatory and Accounting Treatments of Assets

Cited by 13 publications

References 48 publications

Incorporating Credit Quality in Bank Efficiency Measurements: A Directional Distance Function Approach

Incorporating Credit Quality in Bank Efficiency Measurements: A Directional Distance Function Approach

Factors effecting the Capital Adequacy Ratio of banking system of Bosnia and Herzegovina and Croatia

Regulatory Suspensions in Times of Crisis: The Challenges of Covid - 19 and Thoughts for the Future

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