Bad debt is (not) a bad friend

• Main Author: Zavišić Aleksandar
• Format: Article
• Language: English
• Published: Association of Serbian Banks 2016-01-01
• Series: Bankarstvo
• Subjects: non-performing loan; investment strategy; securities; distressed debt; market of non­performing loans; investors; restructuring; reorganization
• Online Access: http://scindeks-clanci.ceon.rs/data/pdf/1451-4354/2016/1451-43541604150Z.pdf

Investing in distressed debt is a less known investment strategy of astute investors. Bonds with uncertain cash flow are the subject of their focus, especially in the Anglo-Saxon financial systems. The range of realized rates of return is very wide and retail investors are out of the game. One aspect of this strategy are investments in non-performing loans, that is the purchase of distressed loans at a discount. It does not take a genius to see that one of the reasons of insolvency in the Serbian economy is the long-standing low economic growth in Serbia, in the region and in Europe. High systemic risk coupled with the inefficient bankruptcy process and out-of-court restructuring are the context in which the problem of non-performing loans is to be solved. A series of other factors related to banks, real estate market, tax considerations, as well as the lack of supportive actions to prevent the increase of non-performing loans act as additional constraints. In mid-2015, a strategy was adopted in Serbia, which recognized this silent and prolonged crisis that has been accumulating within the banking system.