Two Approaches to Resolving Nonperforming Assets During Financial Crises

IMF Working Papers, February 1, 2000

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Two Approaches to Resolving Nonperforming Assets During Financial Crises

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Bibliographic details

• Authors: David Woo
• Published: February 1, 2000
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451845174.001

Summary

• The paper examines two approaches that emerged during the recent Asian financial crisis to resolve nonperforming assets: the creation of asset management companies (AMCs) and the development of out-of-court centralized corporate debt workout frameworks.
• It investigates the respective roles of these two approaches, evaluates their strengths and weaknesses, and seeks to benchmark best practices in their design.
• The unprecedented rise in nonperforming assets during the crisis tested the limit and capacity of existing asset management infrastructure, prompting policymakers to consider these new approaches.

Key Findings and Themes

• Two central approaches defined the core asset management setting in countries most seriously affected by the crisis:
  • Asset management companies (AMCs).
  • Out-of-court centralized corporate debt workout frameworks.
• The paper focuses on:
  • Roles of asset management companies.
  • Asset resolution process.
  • Debt workout mechanisms.
  • Issues concerning distressed assets and market value assessment.
• Geographic and topical emphasis includes East Asia, foreign exchange considerations, and banking sector implications.

Evaluation: Strengths and Weaknesses

• The paper evaluates strengths and weaknesses of both AMCs and out-of-court debt workouts (details presented in the full working paper).
• Considerations include institutional capacity, governance (AMC board, AMC management, AMC subsidiary), and the ability to handle large volumes of nonperforming assets.

Best Practices and Design Benchmarks

• The paper seeks to benchmark best practices in the design of:
  • Asset management companies and their governance structures.
  • Centralized out-of-court corporate debt workout frameworks.
• Emphasis on designing processes to improve resolution speed, preserve market value, and coordinate creditors and banks (lead bank roles referenced).

Content in this bundle

• Two Approaches to Resolving Nonperforming Assets During Financial Crises - WP/00/33
  • Two Approaches to Resolving Nonperforming Assets During Financial Crises - WP/00/33 (Markdown version)
  • Two Approaches to Resolving Nonperforming Assets During Financial Crises - WP/00/33 (PDF)