Resolution of Nonperforming Loans: Do Asset Management Companies Matter?

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When disturbances like an economic crisis, a market reform or even a change of government occur, the financial sector becomes affected and may result in a high level of nonperforming loans (NPLs). This makes banks unable to maintain the same level of lending thereby affecting interest rates and the investment environment. Asset management companies (AMCs) come into the picture to work on erasing NPLs. This article discusses the causes and costs of NPLs as well as efforts at curbing their growth, and focuses on the role of AMCs across different countries in Asia. It then draws some policy lessons for the Philippines' decentralized resolution strategy of letting special purpose vehicles (SPVs) solve the problem of the country's high NPLs.