Home > Resources > Whitepapers > The identification and measurement of nonperforming assets: a crosscountry comparison

The identification and measurement of nonperforming assets: a crosscountry comparison

April 20, 2018

Non-performing assets (NPAs) are a recurring feature in financial crises. Poor asset quality translates into lower interest income and higher loan loss provisions, eventually leading to a deterioration in banks’ profitability and regulatory capital. Over time, high NPAs can lead to bank failures, ultimately threatening financial stability. This, in turn, has negative consequences for the banking system’s ability to provide financing to the real economy. The timely identification of NPAs helps to ensure that the stock of problem assets are recognized on bank balance sheets. Applicable accounting standards on loan impairment and regulatory guidance on NPA entry and exit criteria which are not harmonized across jurisdictions set the broader context for the NPA identification process. Notwithstanding differences in both accounting and regulatory frameworks, determining whether and when an exposure is considered “non-performing” is not always clear-cut and requires banks and supervisors to exercise judgment, based on a combination of quantitative and qualitative factors that are common features of regulatory NPA identification regimes.

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