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NPL

Definition. Causes. NPL. Detection. Indicators. Prevention. Information Sources. Definition. BNM (1988) – NPL, if interest accrues for 12 months BNM (1997) – NPL, if interest accrues for 3 months BNM (1997) – NPL, if interest accrues for 6 months. Lenders Weak project evaluation

abdul-sawyer
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NPL

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  1. Definition Causes NPL Detection Indicators Prevention Information Sources

  2. Definition • BNM (1988) – NPL, if interest accrues for 12 months • BNM (1997) – NPL, if interest accrues for 3 months • BNM (1997) – NPL, if interest accrues for 6 months

  3. Lenders Weak project evaluation Collateral Documentation Monitoring Collection Borrowers Too optimistic Cost estimation Cash flow Overtrading Fraud & abuse Causes

  4. Indicators • Financial statements – decreases in: cash, interest, inventory TO, current ratio; increases in: a/payable,invesntory, short/long term debt, cost, bad debt • Financial link- decreases in bank account balance/o/draf, excuses not to pay, accrued interest/payment • Business operation- relationship with supplier & customer, risk, price, product line • Character- family & health & contact problem, secrecy, new product • Economic condition- sensitivity to economic cycles which can reduce profits, increase cost

  5. Information Sources • Borrowers – relationship with bank, update position • Credit officer – information access • Bank management – social link and knowledge • Auditor – independent, internal • Director – external link with society, general knowledge • Bank examiner - external examiner (BNM), auditor

  6. Prevention • (Shamsuddin,1987) – counseling & advice to borrowers, debt collection & inventory management, loan workouts, additional collateral • (Morsman,1986) – skills & requirements for good & efficient credit officer: • Able to analyze company= industry, market,fin.statements • Able to analyze lending application thoroughly • Qualified in terms of academic, technical, knowledge about bank, experience • Interpersonal communication skills

  7. Detection Proses • Problem identification • Prevention method • Workouts • Negotiation • Collateral • Court order • Danaharta

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