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Fixing Asia’s Bad-Debt Mess
Asia is awash in bad debt that is putting its banks and economies at risk. Private estimates put the total at $2 trillion and growing. But governments peg the amount at a fraction of that level, and the region's banking culture often makes it difficult to collect. Account officers at one Chinese bank, for example, were too embarrassed to call up delinquent borrowers to find out why payments were late.
The take-away: Is there a way forward? Yes—but tough medicine is required. Banks must break the link between loan origination and collection, governments have to leave insolvent borrowers to their fate, and regulators should get tough on loan classification standards. Although these prescriptions are daunting, there are already signs that progress is being made.
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© 1992-2003 McKinsey & Company, Inc
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