4. Structuring the Workout Unit
i. Banks should establish a dedicated Workout Department/Section/or Unit to manage all workout related cases in order to effectively manage NPL resolution process. The Workout Department/Section/or Unit should be independent of the Business/Loan Originating Units to avoid any potential conflicts of interest.
ii. Banks should ensure that. Workout Unit is properly staffed with resources having the required skill sets to manage workout situations, strong analytical, legal, financial analysis skills, and proper understanding of the workout process.
4.1 Performance Management
i. Banks should establish proper and well-defined performance matrices for Workout Unit staff that should not be based solely on the reduction in the volume of nonperforming loans; An appraisal system and compensation structures tailored for the NPL Workout Unit should be implemented and in alignment with the overall NPL strategy, operational plan and the bank’s code of conduct.
ii. In addition to quantitative elements linked to the bank’s NPL targets and milestones (with a strong focus on the effectiveness of workout activities), the appraisal system should include qualitative measurements such as; level of negotiations competency, technical abilities relating to the analysis of the financial information and data received, structuring of proposals, quality of recommendations, and monitoring of restructured cases.
iii. The importance of the respective weight given to indicators within the overall performance measurement framework should be proportionate to the severity of the NPL issues faced by the bank.