Non-performing bank loans: Cyclical patterns and sectoral risk

Is the increase in the volume of non-performing loans in banks' portfolios accounted for by the sharpness of the recent recession alone, or cart it not also be blamed on shortcomings in the institutions' assessments of risk, both at sectoral and at company level? What are the conditions under which a new model of relationship between appraisal, which ultimately depends on the positioning and competitive strategy of the individual firm within a given sectoral context? The increase in the riskiness of loan assets has been worsened by the recession but it is rooted in a lending policy that has been relatively unselective and not shaped by an competitive pressures, with their accompaniment of bad loans have emerged. Accordingly, a reading of the increase in bad debts as the consequence of recession alone is not empirically demonstrated. The starting point of analysis must be elsewhere, namely in such factors as the dynamics of sectoral and company risk that cause corporate crises which are then worsened by the economic downturn in particular the large-scale shakeout of small enterprises. By contrast highly specialized medium-sized firms not only weathered the recession but recorded strong sharp growth and buoyant earnings in relationship will thus prove effective not so much because it overcomes informational asymmetry but because it recoups certain canons of appraisal. Recent developments in short, confirm that proper screening of loan applicants depends on sectoral strategic analysis, including examination of competitive position and of the business performance ratios registered by the prospective borrower's direct competitors and the monitoring of cyclical trends.