| dc.description.abstract | “Non-Performing Loans (NPLs) is one of the asset’s quality measurements used by the central banks and commercial banks. NPL includes distressed loans, defaulted loans and impaired loans. In accordance with the Basel II requirements, the ECB defines NPL as loans where principal and/or interest payments are overdue for more than 90 days, or interest was capitalized or refinanced by other agreement. In addition, it might be a situation when it becomes clear that the debtor is unlikely to fulfil its financial obligations without selling the collateral and, in this case, the overdue days are not important” (Kucinskas, K. et al, 2017).
The aim of this thesis is to understand how banks and asset management entities identify, deal with (in the short term) and support they require to ameliorate (in the long term) the consequences from non-performing exposures. According to Dimitrios Louzis, Angelos Vouldis and Vasilios Metaxas “The determinants of NPLs should not be sought exclusively among macroeconomic variables, which are exogenous to the banking industry. The distinctive features of the banking sector and the policy choices of each bank, particularly with respect to their efforts to improve efficiency and the risk management, are expected to influence the evolution of NPLs”. In order to identify how both entities deal with the non-performing loans (NPLs), the Qualitative method with the ‘open-type’ questionnaire was used. The questionnaire was divided into four [4] sections and was constructed so as to collect as much information as possible regarding the NPLs.
Based on the results, the following are considered as major causes of NPEs; the default by customers, the strategic defaulter and the lack of supervision. In addition, the inadequate credit appraisal system of the modern environment but also that of 2008-2013 contributed positively to the increase of NPEs in the economy. Moreover, the Moral Hazard statement and the Financial Illiteracy have affected positively the NPEs. The financial institutions in dealing with NPEs, were using similar measures such as the creation of dedicated teams within their organizations and selling of loan portfolios to asset management entities. Finally, we can conclude that the impact of NPEs on the balance sheets of the banks was negative.
Furthermore, for those determinants that have significant impact on NPLs have been analysed and presented. The aim of this section is to present how the economy of Cyprus reacted during the global financial crisis and afterwards. Few of the determinants that have been used are the GDP Growth rate, Inflation rate, Employment and Unemployment.
Finally, “NPLs are one of the most critical challenges that banks have to face (Nouy, 2017) to reduce cost (for example restructuring, litigation, and regulation costs) and avoid negative effects deriving from capital absorption and reduced reputation. Excessive NPLs negatively affect banks’ lending (volume and price) through different channels: a) Profitability, because NPLs require banks to raise provisions, b) Capital, because bad loans are associated with higher risk-weights and c) Funding, because investors increase premiums due to risk (IMF, 2015)” (Broccardo, E. et al, 2017) | el_GR |
