Non–Performing Loans Advisory

In a recessionary environment, credit quality can rapidly deteriorate, leading to a build-up of non-performing loans (NPLs). Non-performing loans can pose a burden on economic growth as well as the health of the financial system.

Non-performing exposures often have a long and complicated history with the lender, involving an initially healthy banking relationship, deteriorating due to defaults on interest and principal payments when industry shocks drive a sudden and sometimes prolonged reduction in borrower cash flow.

Eventually, the lender may need to make difficult decisions and formulate a plan for the workout or exit of its NPLs. This may involve restructuring and sale options, either consensually in collaboration with the borrower or via formal processes.

KPMG in Vietnam and Cambodia supports banks and other lenders to conduct a holistic review of the non-performing loan portfolio, provide insights into portfolio composition, risk and evolution, and assess all available options and determine the right strategy for accelerated NPL reduction.

• Our client was a systemic bank which had experienced a significant worsening of its non-performing loans portfolio since the global financial crisis.
• The client was behind on a challenging non-performing loans reduction target set by the regulator.
• Many of its non-performing loans had no reasonable prospects of reaching a viable resolution.
• Additionally, unstructured and scattered portfolio data prevented the bank from taking targeted and consistent action to manage its exposure.

• KPMG seconded a senior team of specialists to the bank to support the non-performing loans reduction agenda.
• We used portfolio analytics to segment the non-performing loans portfolio, analyze inflows and outflows and consolidate exposures across customer groups and industries.
• For the first time, the bank was able to see a holistic view of non-performing loans across all divisions, including statistics by team, customer group, industry, time outstanding and forbearance measures taken.
• All portfolio insights were automated, so that reports which previously took four weeks to produce could be run within an hour.
• KPMG set up the data routines to cleanse and analyze the data, and visualized this in user-friendly dashboards.
• We conducted a holistic review of the corporate non-performing loans portfolio and performed detailed analysis on all possible workout and exit options.
• We established a new Credit Review Board, which functioned as a new governance body to plan and align on non-performing loans resolution strategies ahead of formal submissions to the Credit Committee.
• We worked directly with the Portfolio Managers to implement the plans devised through the Credit Review Board.

• We established a new governance body to expedite decision making and ensure input from all relevant stakeholders when setting strategies for non-performing loans resolution.
• Using portfolio insights generated through KPMG’s data analytics suite, we worked with the remedial teams to deliver value realization strategies and drive rapid recovery of the non-performing loans portfolio.
• We devised a turnaround plan for the bank to ensure portfolio managers were effectively allocated to sectors and portfolio sizes were distributed appropriately to promote speed of resolution.