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Institut für Financial Management

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    Die Integration der Marktperspektive in der Steuerung von Problemkrediten
    (2015) Englert, Jan Patrick; Burghof, Hans-Peter
    The treatment of non-performing loans by banks will remain relevant for the foreseeable future given the recurring nature of bad loan cycles. These cycles differ in their origins as they are triggered by different industries, different countries or a variety of economic contexts. Examples include the bursting of the dotcom bubble and the real estate bubble or the financial crisis in 2008. Likewise, political instability (Russia-Ukraine conflict, financial sanctions), ever-shorter and more volatile economic cycles, cross-border and cross-industry interdependencies, or crises and scandals can cause micro- and macroeconomic uncertainty with the accompanying risk of contagion to the real economy, the financial markets and thereby the credit markets. Almost ten years after the emergence of the financial crisis, European financial institutions are still under pressure, facing high levels of problem- and non-strategic loans. German banks are no exception in having to face these challenges too. Since bank lending still accounts for a dominant share of the market for corporate financing, portfolio steering and credit risk management were, for many years, limited in scope to banks’ internal processes only. An interaction between internal loan processes and capital markets was not foreseen. This has been fundamentally transformed with the emergence of functioning secondary markets for non- and sub-performing loans. These challenges are compelling European banks to address problem loan situations and the efficiency of their loan management processes, something that can only be accomplished through a clean-up of loan portfolios and the institutionalization of professional loan management practices along the entire value chain for problem loans. This requires a re-alignment of the traditional lending business and an anchoring of market-oriented problem loan management within banks’ credit processes. Accordingly, this research paper is based on the hypothesis that the sustainable management of problem loans is impossible without close interaction with capital markets, requiring a reorientation of the traditional lending business to deal with the bad loan business as a core business, even though precisely the opposite is the case.