Two Approaches to Resolving Nonperforming Assets During Financial Crises

Abstract

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMP or IMF policy.Working Papers describe research in progr~ss bv the author( s) and are published to elicit comments and to further debate.The unprecedented rise in nonperforming assets during the recent Asian financial crisis severely tested the limit and capacity of the existing asset management infrastructure, leading policymakers to consider new approaches to resolve them.This paper examines two such approaches-the creation of asset management companies and the development of out-of-court centralized corporate debt workout frameworks-that came to define the core asset management setting in countries most seriously affected by the crisis.In addition to investigating their respective role, and evaluating their strengths and weaknesses, this paper seeks to benchmark some best practices in their design.