NPLs – Car Boot Sale!

Time for a spring clean?

Institutions holding non-performing loans ("NPLs") have been and continue to be, under increasing pressure to divest these and "clean up" their balance sheets in order to free up capital, de-risk and preserve market reputation. Usually, a loan facility becomes non-performing when either payments of principal and interest are past due by 90 days or more, or where payments are less than 90 days overdue, it is expected that payments will not be made in full. Alternatively, other loans can also be regarded as non-performing if they are value impaired (e.g. if the borrower has breached key covenants in its facility or if repayment terms have been altered).

Where a borrower is in financial trouble, it may first look to a lender for restructuring options such as extending its facility, foregoing interest payments or deferring repayments. From a bank's point of view, holding on to NPLs causes a real issue since they increase a bank's management