Nonperforming Loans (NPLs)

1
Nonperforming Loans (NPLs)

• Presentation Points
• IMF Statistics Department
• OECD-UN ECE Meeting On National Accounts
• Paris, October 12-15, 2004

2
NPLs Main Issues

• What is the problem?
• The electronic discussion group (EDG)
• Alternative solutions

3
NPLs What Is The Problem?

• The 1993 SNA does not reflect NPLs
• It recommends recording loans at nominal value
  irrespective of their quality
• Interest continues to accrue, even if no payments
  are made

4
NPLs What Is The Problem?

• "As a result, the accounts may provide a
  seriously overoptimistic view on the financial
  position of holders of nonperforming loans"

5
NPLs What Is The Problem?

• Recording is in 1993 SNA at nominal value until
• Cancellation of debt by mutual agreement (capital
  transfer)
• Writing off of debt (other changes in volume)
• Revaluation (recording the new nominal value and
  the difference as a holding gain and loss)

6
NPLs What Is The Problem?

• Nominal value
• Does not necessarily reflect true financial
  positions
• Is a departure from the general SNA principle of
  valuing assets at market prices

7
The Electronic Discussion Group

• In 2002, the ISWGNA requested the IMF set up an
  EDG on NPLs
• In 2003, a progress report was presented, based
  on 21 contributions
• In July 2004, a questionnaire was sent, which
  received 37 replies
• In October 2004, a final report is ready for
  consideration by the ISWGNA and the AEG

8
NPLs Alternative Solutions

• Leave the 1993 SNA as is
• Continue with recording nominal value but with
  mandatory memorandum items showing market values
  and interest arrears
• Record market values in creditors accounts and
  nominal values in debtors accounts
• Record loans at market value for both creditors
  and debtors, with mandatory memorandum items
  showing nominal values and interest arrears