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The identification and measurement of non-performing assets: a cross-country comparison

Summary:
By Patrizia Baudino, Jacopo Orlandi and Raihan Zamil The prompt identification and accurate measurement of non-performing assets (NPAs) provide confidence to market participants and supervisors in banks' reported asset quality metrics, earnings performance and regulatory capital ratios - all of which are critical to fostering financial stability. Yet NPA identification and measurement practices vary considerably across jurisdictions. This is due to differences in the construct and/or application of relevant accounting standards on problem assets and provisioning. Such differences are exacerbated by variations in the role and design of prudential frameworks that govern NPA identification and measurement.

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The prompt identification and accurate measurement of non-performing assets (NPAs) provide confidence to market participants and supervisors in banks' reported asset quality metrics, earnings performance and regulatory capital ratios - all of which are critical to fostering financial stability. Yet NPA identification and measurement practices vary considerably across jurisdictions. This is due to differences in the construct and/or application of relevant accounting standards on problem assets and provisioning. Such differences are exacerbated by variations in the role and design of prudential frameworks that govern NPA identification and measurement. This paper outlines the major differences across key jurisdictions and provides a range of prudential policy options to enhance the identification and measurement of NPAs.

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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