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Optimising Distressed Loan Books: Practical solutions for dealing with non-performing loans by John Michael Sheehan

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2. Why Banks Fail To Maximise Distressed Collections

After a market crash, a high percentage of a bank’s loan book may be impaired. In many jurisdictions, the provision of these loan books is unregulated. Rules and regulations vary in different countries, and even the term non-performing loan has different meanings around the world. Standardised classifications are applied to delinquent loans, but generally it is up to the individual institution to judge and calculate its exact provisioning needs.

The bank’s main priority is then preserving capital and avoiding hits to its profit and loss account. Faced with sudden losses, negative headlines and a battle for survival, it is understandable that banks adopt a safe, low-risk, defensive posture. ...

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