Non-performing loans at the dawn of IFRS 9: regulatory and accounting treatment of asset quality

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently no standard is applied universally to categorise loans, the most sizeable asset on banks’ balance sheets. As a corollary, definitions of nonperforming loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes, and firms. The paper relies on a multi-disciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning (LLP) and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater

prior shared experience and survival of spin-offs from restructured state enterprises

Many organizations, especially in emerging economies, trace their origins to restructured state enterprises, and this study explores the implications of such origins for organizational adaptation to changing environmental conditions. We compare the activity choices and survival chances of spin-offs from restructured state enterprises with those of de novo organizations. We argue that prior shared experience of spin-offs’ managers and employees facilitates the redeployment of routines developed in parent state enterprises. This should predispose spin-offs to pursue familiar activities, but this choice is not completely predetermined, and its survival implications depend on the environmental conditions. Our empirical findings suggest that spin-offs from restructured state enterprises are less likely to engage in new activities than de novo organizations. However, those restructuring spin-offs that do engage in new activities before the regulatory regime shift significantly improve their survival chances after the shift. Moreover, we find that the detrimental effect of the regulatory regime shift and the beneficial effect of engaging in new activities are stronger for spin-offs from restructured state enterprises than for de novo organizations.authorsversionpublishe

The sovereign debt crisis: the impact on the intermediation model of Italian banks

The aim of the contribute is to analyze the impact of the financial crisis, in particular since the start of the sovereign debt phase, on Italian banks and their intermediation model. Italian banks\u2019 specific business model explains why they suffered less than those of other countries during the first phase of the crisis, requiring one of the lowest levels of public facilities in the EC as compared to GDP. Most of these same characteristics have changed from positive to negative factors since the sovereign debt crisis, which hit Italy hard, affecting first banks\u2019 liquidity and secondly the cost and volumes of funding and loans. Italian banks are now facing the effects of the double-dip recession, which has significantly weakened businesses and households, their key customer segments, and their borrowing and saving capability, with an increasing rate of non-performing loans. This situation is impairing the sustainability of the \u201ctraditional\u201d intermediation model and means that banks must introduce strategies for significantly modifying the banking business model they adopt