NPLs and recovery of delinquent portfolios

Usually the acronym NPLs (Non Performing Loans) are used in the financial field and is a reality in Spanish banks as well as in international banks. This specific term is used to refer to credits and, especially, not for something positive, but it is used to refer to portfolios of non-performing loans.

Nowadays, the management of delinquent portfolios is a growing problem and currently banks prepare for a rebound in defaults by selling off portfolios of non-performing loans. In addition, it should be noted that, Spain is the third country in Europe with the most NPLs.only behind France and Italy.

But, to go a little deeper, we explain below what is Non Performing Loans and its main characteristics.

What is NPLs: Definition and characteristics

Nonperforming loans or Non Performing Loans (NPLs), are those that have expired or exceeded credit limits (when customers fail to meet agreed payments for 90 days or more). Put another way, these are loans in which the borrower no longer meets their maturity dates.

Since the loan installments are no longer met, not only does the lending bank no longer receive any remuneration, but also the increased risk of default by the customer forces the bank to reinforce its provisions. 

Therefore, If banks are overloaded with NPLs, they will not be able to extend as much credit, This has a negative impact on the profitability and soundness of the entity itself, indirectly affecting other sectors of the economy and hindering the development and employment of a country.

4 Types of NPLS

NPLs are divided into different types and vary in some aspects such as: the maturity date, the value of the exposure, etc. Below we show you the different types that exist:

• NPLs for bad loans: are receivables that are difficult to collect due to the debtor's serious state of insolvency (the main cause is of a judicial nature).
• NPLs for substandard loans: are less serious than the previous ones, being in a first stage of delinquency. However, they are also considered difficult to collect due to the temporary difficulties experienced by the debtor.
• NPLs for restructured exposures: any credit whose conditions have changed over time with respect to the original contract. This usually happens when the debtor does not pay the debt to the creditor bank. As a result, payment terms are lengthened to allow the debtor to settle the debt.
• NPLs for expired exposures: refer to all accounts receivable that are not included in the first three cases but which in any case have not been paid for six months.

How can a bank avoid accumulating delinquent portfolios? 

Banks should avoid granting loans that are too risky from the outset: they should follow sound credit criteria and properly assess the creditworthiness of borrowers to ensure that loans are only granted to customers who are likely to repay them.

Thanks to Artificial Intelligence (AI) and Machine Learning can monitor the loan and asset portfolio, effectively predicting non-performing loans efficiently and quickly., saving million euros to banks and finance companies.

Also once the situation of impairment or default has been verified in the credits, AI solutions can assess the severity of that delinquency and optimize recovery actions of the debt.

From GamcoThe company, a specialist in the recovery of delinquent portfolios, can help you lower the ratios to avoid loan defaults. and significantly increase the accuracy of the prediction of NPLs.

Our solutions for risk management optimization and default prediction based on artificial intelligence include predictive models and customized predictions for each risk portfolio. In addition, alerts can be created from the data collected, allowing banks to assess the risk status of an account and take preventive measures before they occur.

Our ARM-NPLs solution (a link to solutions will be added later when it is updated) is modular and can be adapted or expanded according to the client's needs, adjusting to different risk policies and integrating with corporate systems.