Nonperforming Loans in CESEE – An Even Deeper Definitional Comparison

This study builds on two previous studies the author contributed to Focus on European Economic Integration (FEEI), namely “Nonperforming Loans in CESEE – What Do They Comprise?” (Barisitz, 2011) and “Nonperforming Loans in Western Europe – A Selective Comparison of National Definitions” (Barisitz, 2013). It draws the following conclusions from Barisitz (2013) for the analysis of nonperforming loans (NPLs) in Central, Eastern and Southeastern Europe (CESEE): The slightly revised and simplified NPL definition (primary elements: principal or interest 90 days or more overdue and/or existence of well-defined weaknesses of loan or borrower) proposed in Barisitz (2013) facilitates cross-country comparison and is fully applicable to CESEE countries. Secondary elements (treatment of replacement loans, impact of collateral and/or guarantees, recording of total loan or only part of a loan as NPL, treatment of multiple loans to one borrower) may result in upward or downward biases of individual countries’ (suggested) NPL definitions. Overall, we derive NPL ratios that are roughly internationally comparable in a transparent and replicable manner. By providing a comparative overview of what NPLs constitute, this study (together with its two predecessors) hopes to make a contribution to the currently widely debated issues of uncertainty about banks’ balance sheets and (lack of) comparability across banks and countries.