Creditor coordination in resolving non-performing corporate loans

John Fell, Miha Cajnko, Maximilian Fandl, Maciej Grodzicki, Claudia Mayer, O’Brien, Edward, Martina Spaggiari and Pär Torstensson
Authors registered in the RePEc Author Service: Edward J. O'Brien

Financial Stability Review, 2021, vol. 2

Abstract: Numerous European and national initiatives have been deployed since 2014 to reduce non-performing loan (NPL) stocks on euro area bank balance sheets. NPL ratios have fallen as a result, but very gradually, mainly thanks to sales to non-bank investors. Despite stronger market activity, prices paid by NPL investors have only improved marginally and continue to stand well below values assigned to NPLs by banks. One type of NPL that has proven particularly difficult to resolve is loans to non-financial firms that have borrowed from multiple banks – multi-creditor loans. Analysis of these loans relative to others finds lower provision coverage by the lending banks, reflecting more optimistic valuations by individual banks and limited recognition of the expected costs of multi-creditor coordination. This special feature proposes a strategy to overcome creditor coordination failures and costs, through the use of data platforms providing ex ante transparency to NPL investors. These, together with NPL securitisation, could substantially reduce the gap between the value of the loans booked on banks’ balance sheets and the prices offered by investors for NPL portfolios. JEL Classification: G21, G32

Keywords: Corporate distress; non-performing loans; securitisation (search for similar items in EconPapers)
Date: 2021-11
Note: 335129
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