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Proposal to establish distressed debt collection companies
Economical 07/04/2023
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Baghdad: Haider Falih al-Rubaie,
the financial advisor to the Prime Minister, Dr. Mazhar Muhammad Salih, urged the need to follow a series of measures to ensure that bank loans granted to individuals and investment companies do not default, placing at the forefront of these procedures the establishment of (bad debt collection companies) as well as setting precautionary provisions around capital At a rate determined by the regulatory regulations for the risk of default and non-payment of debt installments.
The financial advisor's assurances came in response to a proposal by economist Dr. Ali Hadi Jouda, who called, during his interview with Al-Sabah, to establish these companies.
Many banks suffer as a result of defaulting on the repayment of loans granted to beneficiaries, whether they are individuals or investment projects, which prompted them to impose “restrictions” that were rejected by many of those seeking to obtain these loans, especially with regard to mortgages and the guarantor.
Saleh said to “Al-Sabah”: “In accordance with the international banking regulatory regulations adopted by banks and banking systems in the world, especially the regulations issued by the Bank for International Settlements, which are called (Basel) rules, it requires the lending banks, which are the (creditor) donor or that Credits are granted to borrowers as (debtors) in anticipation of defaults facing the recovery of loans as a result of the debtor’s failure to pay what he owes to the bank, which exposes the bank or the fund granting loans or credits to the risk of insolvency, default, bankruptcy and influence on the center of banking property rights.
The government advisor believes that it is necessary for these banks to follow a number of precautions in order to reduce the problems of loan defaults and defend them against the risks of debtors defaulting, including setting precautionary provisions around the capital at a rate determined by the regulatory regulations for the risks of defaulting and non-payment of debt installments or the entire debt with interest, and that To compensate for defaulted uncollected funds, provided that the default does not exceed a maximum of 5% of the total credit granted within banking applications that are often required by preventive banking supervision.
Saleh also stressed the importance of “reserving sufficient guarantees in exchange for granting the loan, which will be gradually liquidated upon non-payment to compensate for the loss resulting from the debtor’s failure to pay his debts due to the bank, including real estate guarantees, shares, bonds, bills of exchange, guarantees provided by guarantors, and various guarantor assets reserved for the interest of the bank granting the credit or loan.
” ».
As a result of the widening problems of defaulting debts, Counselor Saleh explained that “there is a complementary trend in the world based on the principle of establishing (bad debt collection companies) that collect and pay an agreed-upon part of the defaulted debt in cash to the bank in exchange for exchanging it for guarantees, and the relationship with the creditor bank ends,” noting that This type of company usually undertakes the liquidation of guarantees from real estate or other assets that are in the custody of the debtor, which is something that avoids the banking system losses resulting from default, which directly affect the financial position of the bank and reduces the standards and ratios of control risks
.
Therefore, the establishment of a bad debt collection company is the trend in many countries, which is to transfer the bad debt guarantees to the debt collection company, which undertakes the liquidation or collection of the guarantees provided in exchange for the bank granting the loan to the creditor in its interest according to the law.
The endorsements of the government advisor for the establishment of the troubled debt collection company came in response to the proposal of the economist and member of the Private Sector Development Council, Dr. And the other part is financed by deducting insurance from loans that go to finance projects of any size, and then these funds are invested in investments that maximize the size of the fund.
Hadi indicated that the fund proposed to be established could contribute to the payment of bad debt obligations to investors as well as public sector companies carrying out business for specific periods with the guarantee of the project and with a simple rate of return, stressing that this fund will lift the weight off the shoulders of many businessmen and will establish the basis for bold financing with the guarantee of existing projects. It enhances market gains and creates job opportunities, provided that it is established by a flexible law and distinguished management.
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