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Nonperforming Loans in CESEE – What Do They Comprise?

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Abstract

This study attempts to shed comparative light on nonperforming loans (NPLs) by analyzing the loan classification systems in ten Central, Eastern and Southeastern European (CESEE) countries, namely Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Serbia, Slovakia and Ukraine. Comparing NPL data across countries is often found to be difficult. Three approaches are used to identify a loan as nonperforming. First, the most widely known NPL definition, which is based on the IMF Financial Soundness Indicators (FSIs) Compilation Guide, is simple and clear: “principal or interest 90 days or more overdue.” The IMF strives to present cross-country comparative time series of NPL and other prudential indicators on the FSI website. With respect to nonperforming loans, the FSI website as yet lacks comprehensive data coverage, and comparability is in fact restrained. Therefore, we propose to take stock of national definitions, for which more extensive time series of data are available. Second, national supervisors’ NPL definitions mostly relate to the commonly used credit quality categories proposed by the Institute of International Finance (IIF), whose weakest three categories (“substandard – doubtful – loss”) are typically identified as nonperforming loans. Third, NPL definitions of CESEE and other countries regularly refer to the existence of a “well-defined weakness” of the loan or the borrower in addition to some other factors. Based on these criteria, with priority given to the 90days+ rule, we arrive at an NPL threshold, which includes in some cases NPL bands. We hope this threshold is applicable in such a way that it enables meaningful cross-country comparisons. Finally, the study takes a rough comparative snapshot of the development of NPLs (based on the derived threshold) in the CESEE countries from 2005 to 2010.

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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2011)
Issue (Month): 4 ()
Pages:

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Handle: RePEc:onb:oenbfi:y:2011:i:4:b:2

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Related research

Keywords: Bank lending; CESEE; credit quality; credit risk; financial soundness indicators; nonperforming loans;

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References

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Citations

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Cited by:
  1. Pinar Yesin, 2013. "Foreign currency loans and systemic risk in Europe," Review, Federal Reserve Bank of St. Louis, issue May, pages 219-236.
  2. IRC Expert Group of the ESCB, 2012. "Financial stability challenges for EU acceding and candidate countries: making financial systems more resilient in a challenging environment," Occasional Paper Series 136, European Central Bank.
  3. Antje Hildebrandt & Reiner Martin & Katharina Steiner & Karin Wagner, 2012. "Residential Property Markets in CESEE EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
  4. Jarko Fidrmuc & Mariya Hake & Helmut Stix, 2011. "Households’ Foreign Currency Borrowing in Central and Eastern Europe," Working Papers 171, Oesterreichische Nationalbank (Austrian Central Bank).

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