Academic journal article ABA Banking Journal

A Nonperforming Account Is Still a Valuable Customer

Academic journal article ABA Banking Journal

A Nonperforming Account Is Still a Valuable Customer

Article excerpt

The way you treat a nonperforming loan matters more than you may think. Commercial banking is a small world where customers talk to each other and where having a sterling reputation for being reasonable when the chips are down can go a long way toward winning new business.

Likewise, when contemplating loan sales, giving consideration to the reputation of your assignee and thus your reputation by association is critical in choosing a partner for the sale of credit-intensive assets.

Intuitively, you already recognize the importance of reputation; but you also understand the importance of maximizing profitability, streamlining your balance sheet and efficiently refocusing management attention through the disposition of non-strategic assets. Distressed assets create uncertainty regarding the return of employed capital, impair risk ratios and distract managerial attention from its core areas of expertise including origination, customer service and business development.

How then does a banker deal with this tradeoff between operating in the reputable manner required to continually attract new business and mitigating the loss from existing credit-intensive assets? What if it were possible to accomplish all of your key financial objectives while simultaneously engendering respect and loyalty among your customer base during their most turbulent times? …

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