Non-Performing Loans in South-Eastern Europe

Ensight Management Consulting, affiliated member of the Eurogroup Consulting network, took part in preparing the European study for Non-Performing Loans (NPLs). A special focus was given on the evolution and the management of NPLs

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Not surprisingly, the longstanding economic crisis in the whole European area has been seriously affecting credit quality. Following the 2008/09 period, non-performing loans (NPLs) increased rapidly across Central and Eastern European (CEE) countries (from 3.5% before the crisis to over 11% at the end-of 2011 in regional average). The asset deterioration continues in a large number of countries, particularly in South-Eastern Europe (SEE) where the recovery is still late and weak.

 

NPL ratios are continuing to increase in South-Eastern Europe (7.3% on average in Q1 2012, showing an additional 2.5% compared to 2009). In Romania, Q1 2012 figures for NPL ratios show the worst values in the region: 20.1% from 15.6% in 2011 and 7.2% in 2009.

 

 

In terms of recovery actions,at European level, banks are more oriented towards adjusting payment terms – generally avoiding interest capitalization or refinancing – rather than towards selling NPL portfolios or enhancing collection activities, which are still relatively rare.

 

In times of economic slowdown, efficient portfolio & workout management becomes a key profitability driver. A sophisticated management of non-performing loans means building a mechanism able to take into account a variety of parameters, each oriented to answer to a specific need, and creating portfolio segmentation consistent with the internal strategies of customer and risk management.

 

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