Managing NPEs Under Financial Crisis Conditions: A Synthetic Quick Approach

Konstantinos J. Liapis
European Research Studies Journal, Volume XXI, Issue 4, 688-713, 2018

Abstract:

When an economy faces a financial crisis, a secondary problem occurs regarding the management of Non-Performing Exposures. There are many ways to solve this problem. This article contributes to the solution of the above problem by presenting a quick synthetic and modern financial methodology for dealing with the Non-Performing Exposures. Our proposal is initially based on the securitization of loans portfolios. Through the process and the structure of securitization, it is possible to derecognize portfolios under the provisions of IAS39 and to transform its residual value into capital market securities. To that end, flow charts regarding the securitization process and derecognition are provided. Subsequently, the valuation of the capital market security through securitization depends on the collection of the total portfolio that is securitized. A model for the valuation of the residual title under certainty and uncertainty is provided. Based on a recent transaction that has been carried out having apply most of the above features, we have found that banks can implement this solution for NPEs portfolios by transferring their management to specialized companies and thus improving all their financial ratios. The main academic debate that has been developed deals with the determinants of NPEs creation, by examining how these factors influence the formation of NPE portfolios and the features of their structure without involving the effective management of the NPEs. Our article contributes to that challenge.


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