Management of Corporate Distressed Debt: From Terminology to Statistics

The aim of the paper is to systematize definitive approaches of “problem (distressed) debt” and related terms in order to create a conceptual apparatus useful from the point of view of management entities, as well as to statistically study the dynamics and sectoral structure of problem debt based on the banking sector performance indicators in Russia and other countries in 2009–2023. As a result of the analysis of international and Russian documents in the field of banking regulation, two types of problem debt typologies have been identified: classifications of credit risk of the supervisory authority and recommendations of internal credit risk. Two approaches to the definition of “problem (distressed) debt” have been identified: a regulatory (accounting) approach based on the requirements of regulatory authorities and reporting standards; an identification approach that includes a list of various signs of problems. As a result of the synthesis of approaches, the article proposes the author’s understanding of the terms “overdue debt (credit)”, “problem (distressed) debt” and “problem asset”, taking into account the subject composition of debt managers, represented not only by banks, but also by trade creditors. As part of the preparation of the statistical review for 15 years, a constant excess of the share of “bad” loans (with no probability of repayment and complete depreciation of debt) over “problematic” ones was revealed, which confirms the low effectiveness of the banks’ preventive work to prevent borrowers from becoming problematic (troubled). The authors analyzed the dynamics of the ratio of non-performing loans (NPL) to the total volume of loans issued in 28 countries of the world, revealed a relatively high proportion of the indicator in Russia in recent years. An assessment of the sectoral debt structure of Russian companies showed the dominant position of the manufacturing industry, whereas in the structure of overdue debts, the main companies are from the real estate, wholesale and retail trade sectors. The work of credit institutions to manage problem debts is an important issue of ensuring the economic security of the state and should include monitoring the condition of borrowers based on a strategic map and a comprehensive analysis model, using the methodology of managing transformational projects for the financial recovery of troubled companies.

1. Andryushin S.A., Kuznetsova V.V. (2012) Features Credit Activity in the Banking Sector of Russia in the Period of Growth of Bad Debts. Imushchestvennyye otnosheniya v Rossiyskoy Federatsii. No. 1(124). P. 6–23.

2. Anson M.J.P. (2002) A Primer on Distressed Debt Investing. The Journal of Private Equity. Vol. 5. Is. 3.P. 6–17.

3. Barachoeva M.S. (2022) Issues of Management of Problem and Overdue Loan Debt of Commercial Banks. Upravlencheskiy uchet. No. 6–2. P. 330–335. DOI: 10.25806/uu6-22022330-335

4. Belousov A.L. (2012) Pravovyye aspekty peredachi bankami prosrochennoy zadolzhennosti kollektorskim organizatsiyam [Legal aspects of transfer of overdue debts by banks to collection organizations]. Finansy i kredit. No 38(518). P. 42–47.

5. Bianchi M.T., Cosentino A. (2021) The Impact of Digitalization on the Company Value: A Nonperforming Loan Management Business Application. In: Chiucchi M.S., Lombardi R., Mancini D. (eds.) Intellectual Capital, Smart Technologies and Digitalization: Emerging Issues and Opportunities. Cham: Springer. P. 251–259.

6. Bobyleva A.Z., Lvova O.A. (2019) Bankruptcy Prevention: Institutional Support for Mergers and Acquisitions of Distressed Companies. Problemy teorii i praktiki upravleniya. No. 7. P. 87–99.

7. Bobyleva A.Z., Popov N.E. (2023) Project Management of Companies’ Financial Recovery. Rossiyskiy zhurnal upravleniya proyektami. Vol. 12. No. 2. P. 20–27. DOI: 10.12737/2587-6279-2023-12-2-20-27

8. Bondar A.P., Blazhevich O.G., Sugonyako I.V. (2016) The Activities of Credit Institutions to Minimize the Problem Assets. Byulleten’ nauki i praktiki. No. 4(5). P. 403–408. DOI: 10.5281/zenodo.54662

9. Golubeva A.V., Bondar A.P., Fedorov I.A. (2016) On the Essence of Problem Debts. Uchenyye zapiski Krymskogo inzhenerno-pedagogicheskogo universiteta. No. 2(52). P. 48–52.

10. Guo X., Jarrow R.A., Lin H. (2008) Distressed Debt Prices and Recovery Rate Estimation. Review of Derivatives Research. Vol. 11. P. 171–204. DOI: 10.1007/s11147-009-9029-2

11. Harner M.M. (2008) Trends in Distressed Debt Investing: An Empirical Study of Investors’ Objectives. American Bankruptcy Institute Law Review. Vol. 16. Is. 69. Available at: https://ssrn.com/abstract=1147643

12. Khandrikov A.A. (2003) Mezhdunarodnyy opyt upravleniya problemnymi aktivami [International experience in managing distressed assets]. Finansy i kredit. No. 15(129). P. 61–66.

13. Kosmacheva N.M., Stetczunich Yu.N. (2018) Assessment of the Quality of Credit Risk Management in Banks by the Criterion of Overdue Debt. Ekonomika novogo mira. No. 4(12). P. 47–58.

14. Lvova O.A. (2021) Indicators for Assessing the Effectiveness of Bankruptcy Management System in Russia according to Statistical Sources. Gosudarstvennoye upravleniye. Elektronnyy vestnik. No. 89. P. 32–51. DOI: 10.24412/2070-1381-2021-89-32-51

15. Lvova O.A. (2023a) Preventive Restructuring Toolkit for Business Bankruptcy Prevention Gosudarstvennoye upravleniye. Elektronnyy vestnik. No. 98. P. 31–47. DOI: 10.24412/2070-1381-2023-98-31-47

16. Lvova O.A. (2023b) Business Evaluation within Crisis Management: Approaches for Owners, Creditors, Insolvency Practitioners and Investors. Vestnik Instituta ekonomiki Rossiyskoy akademii nauk. No. 44. P. 89–111. DOI: 10.52180/2073-6487_2023_4_89_111

17. Nikiforova V.D., Kovalenko A.V., Nikiforov A.A. (2019) The Main Directions of Improving the Efficiency of Commercial Banks with Problem Loans. Nauchnyy zhurnal NIU ITMO. Seriya “Ekonomika i ekologicheskiy menedzhment”. No. 3. P. 93–100. DOI: 10.17586/2310-1172-2019-12-3-93-100

18. Nikolopoulos K.I., Tsalas A.I. (2017) Non-Performing Loans: A Review of the Literature and the International Experience. In: Monokroussos P., Gortsos Ch. (eds.) Non-Performing Loans and Resolving Private Sector Insolvency: Experiences from the EU Periphery and the Case of Greece. Cham: Palgrave Macmillan. P. 47–68. DOI: 10.1007/978-3-319-50313-4_3

19. Platonova Yu.Yu., Zaichenko S.E. (2011) Instrumenty upravleniya portfelem problemnykh kreditov v sovremennykh usloviyakh [Tools for managing a portfolio of problem loans in modern conditions]. Finansy i kredit. No. 4(436). P. 28–36.

20. Popov N.E. (2021) The Role of the State in Dealing with Problem Debts during Crisis Periods: Russian and International Experience. Innovatsii i investitsii. No. 11. P. 73–82.

21. Smulov A.M., Nurzat O.A. (2009) Problemnaya zadolzhennost’: ponyatiye, osnovnyye priznaki i mery povysheniya effektivnosti vozvrata problemnykh kreditov [Problem debt: The concept, main signs and measures to improve the efficiency of repayment of problem loans]. Finansy i kredit. No. 35(371). P. 2–12.

22. Varlamova E.A. (2022) Production Complex: From an Investment Project to a Problem Asset. Imushchestvennyye otnosheniya v Rossiyskoy Federatsii. No. 8(251). P. 19–24.

23. Zaernyuk V.M., Anashkina E.N. (2014) How to Deal with the Problem of Debt Arrears of Banks for Retail Credit. Finansovaya analitika: problemy i resheniya. No. 43(229). P. 17–26.