Asset Reconstruction Companies (ARCs) can help banks to quickly clean up their balance sheets, so that ailing banks may stand up on their feet. The experiences of ARCs have been mixed, the world over. Their success rate ranges from unsatisfactory to good. The major factors contributing to the successful operation of an ARC, as observed by the Bank for International Settlements (BIS), are strong political will, explicit government financial support, supportive legal infrastructure, efficient market environment, clear mandate for Asset Management Companies (AMCs), a well-defined AMC life, adequate governance, good transparency, realistic asset pricing and speedy resolution.
Banks plunge into financial crisis due to the burden of bad loans. As banks are highly leveraged entities that thrive on public trust, governments are generally concerned with bank failures and wish to turnaround crisis-ridden banks, in the interests of economic welfare. Asset Reconstruction Companies (ARC), otherwise called Asset Management Companies, have been playing no insignificant role in avoiding bank failures by buying bad loans at a discount as well as by corporate debt restructuring.
This article presents an account of such ARCs in 8 Asian countries namely India, Philippines, Thailand, China, Japan, Indonesia, Malaysia and South Korea.
ARCs have two main functions: Buying bad debts at a discount from ailing banks and recovering them, and second, restructuring bad debts. |
