Non-performing Loans and Methods of Problem Loan Resolution

Course details

During this course, participants will acquire the necessary skills to manage problem loans. These skills include identifying the signs of problem loans, rescheduling and monitoring problem loans, and using various methods to resolve problem loans.

Course Description:

During this course, participants will acquire the necessary skills to manage problem loans. These skills include identifying the signs of problem loans, rescheduling and monitoring problem loans, and using various methods to resolve problem loans.

Course Objectives:

• Define non-performing loans and the causes.
• Identify the indicators of non-performing loans.
• Explain the banking treatment of non-performing loans.
• Explain the banking treatment of non-performing investment projects.
• Monitor rescheduled non-performing loans.
• Manage non-performing loans.
• Explain the principles of borrower credit ratings and provisioning.
• Identify the lessons learned from classified/non-performing loans.
• Describe the legal aspects of working with non-performing loans.

Course Outline:

Module 1: Introductionto Non-performing loans

• Introduction to the elements of credit
• Element of uncertainty
• Element of confidence
• Element of time
• Definition of non-performing loans
• Non-performing projects
• Non-performing borrowers
• Causes of non-performing loans
• Inappropriate financing tranches and/or credit facilities
• Inadequate credit analysis
• Defective loan monitoring
• Disbursement problems
• Lender causes
• Borrower causes
• Environmental causes
• Module 2: The Indicators of the Non-performing Loan
• The four stages of the non-performing loan
• Short-term liquidity problem
• Long-term liquidity problem
• Deteriorating financial structure
• Complete failure
• The indicators of non-performing loans in the financial statements
• Income statement
• Balance sheet
• Financial ratios and indicators
• Indicators of problem loans generated internally by clients’ accounts in banks
• Borrower account movements
• Analysis of the borrower’s goods and / or services
• Analysis of the borrower’s guarantees
• Analysis of unforeseen guarantees related to clients
• Problem loan indicators generated from client information and field visits
• The usage of the Eltman predictor

Module 3: The Banking Treatment of Non-performing Loans

• Strategies for dealing with non-performing loans
• Liquidation
• Settlement
• Various scenarios for modifying the status of borrowers in default
• Rescheduling the debt
• Financial injection
• Equity participation
• Settlement through reducing bank profitability

Module 4: The Banking Treatment of Non-Performing Investment Projects

• The treatment of failing projects due to the lack of a sound feasibility study
• The cash injection method
• Transitioning part of the frozen loans to equity participation
• Recovering the non-performing loan by marketing the goods and services of the borrower in default

Module 5: Monitoring Rescheduled Non-performing Loans

• The importance of grading and sequencing when rescheduling non-performing loans
• Rescheduling non-performing loan repayments
• On-site monitoring

Module 6: Managing Non-Performing Loans

• Introduction to the management of non-performing loans
• The functions and responsibilities of problem loan management
• Procedures for transferring the borrower from performing loans to non performing loans

Module 7: The Principles of Borrower Credit Ratings and Provisioning

• Management of credit risk and borrower credit risk ratings
• Credit risk management
• The explanation of the Obligor Risk Rate (ORR)
• Credit ratings and loan loss provisions
• The accounting treatment of irregular loan repayments
• The rules for determining the fair market value of pledged mortgage collateral
• The general rules for provisioning
• Management of credit risk and the classification of consumer and residential mortgage loans
• Introduction
• Credit risk management
• Credit ratings, provisioning and the status of real estate
• The accounting treatment of irregular returns and the general rules for provisioning
• Credit risk management and the classification of small loans
• Introduction
• Credit risk management
• Credit ratings and provisioning
• The accounting treatment of loan repayments
• General rules for provisioning

Module 8: Lessons Learned from Classified Loans

• The necessity of a credit policy approved by the board of directors
• The necessity of a standardized credit information system
• The necessity of sound risk assessment
• The necessity of regular document review and field loan monitoring
• The importance of credit quality standards and sound credit analysis
• Emphasis on collateral
• The importance of resolving non-performing loans

Module 9: Legal Aspects of Working with Non-performing Loans

• The legal status of the borrower in default
• Status of the defaulted borrower’s collateral

Assessment Strategy:

Participants will be assessed formally through an end of training course test