Protecting non-performing assets in a challenging market environment

The impact of non-performing assets on NIMs

Many observers thought those headwinds would have receded by now, but the impact of non-performing assets on NIMs is as strong today as it was last year.

According to the Financial Times, non-performing loans rose to a combined $24.4 billion in the last three months of 2023—up $6 billion from 2022. The banks that reported smaller profits in the last quarter of 2023 forecast that margins would continue to fall in 2024, even with anticipated modest growth in new loans. Fitch Ratings gave those forecasts greater weight when it predicted that leveraged loan default rates will rise in 2024, citing the impact of “higher-for-longer interest rates.”

The impact isn’t just relegated to one segment. Repayment softness is being felt across all lending classes, including auto, home, student, and credit card loans. The detrimental effect is especially acute among non-prime borrowers, who comprise nearly 50% of the American population.

Protecting assets through digitization and automation

Fortunately, technology can help FIs protect against all non-performing assets. By digitizing lending and automating lien processing and monitoring, FIs can minimize errors and risk, proactively address potential loan defaults, and quickly and accurately claim interest in loan collateral, resulting in healthier bottom lines.

iLien, a web-based loan automation tool from Wolters Kluwer, exemplifies how technology can improve loan origination and limit lending risk. iLien automates many of the traditional manual processes associated with loan creation, such as UCC filing, bankruptcy record searches, and more. Loans are created and managed accurately and expeditiously, significantly minimizing the chances that they will be rejected by investors or contested by borrowers.

iLien also helps protect against possible non-performing assets and loan defaults by employing a three-prong approach to loan monitoring and management:

Search: FIs can perform public records searches for any existing claims against prospective borrowers before making lending decisions. iLien is also backed by a team of experienced financial services experts who are on call and ready to provide detailed profiles of potential borrowers upon request. With iLien, protection begins before any agreements are signed.

File: It’s estimated that up to 10% of any FI’s portfolio might be comprised of inaccurate liens. iLien’s portfolio optimization features automatically identify and remove duplicate UCC filings, check to make sure all entity information is correct, and more, ensuring that every lien is completely accurate before it’s filed.

Manage: Careful management can keep liens themselves from becoming non-performing assets. iLien automatically detects factors that could adversely affect the loan, such as an individual's name change, a loan expiration date, or other circumstances. It also monitors borrower status and activities, so FIs can detect patterns that could indicate a potential default, such as a loss of good standing.

iLien is complemented by the eOriginal^® eAsset Management platform, which digitizes the creation, storage, and assignation of electronic loans (eLoans). eLoans are stored in an eVault that provides security and digital certainty for every eLoan it contains, ensuring that eLoans are authentic, negotiable, transferable, and compliant with federal regulations. eVault offers essential protection, especially for instances where a loan might be called into question.