Question

The loan recovery rate is the amount of money retrieved upon default, expressed as a per cent of the gross exposure. Over the next five years do you expect recoveries from loan defaults to increase or decrease? Give reasons to support your view.

Answer 1

I personally feel that over the next five years, the recovery from the loan defaults are going to decrease because the credit and the liquidity in the system has completely evaporated and the central banks across the world are trying to provide with extreme stimulus support in order to inflate the demand in various parts of the globe to help economic stability.

Those organisations who do not have enough cash in their hands and they do not have enough liquidity and their hands will be more prone to higher financial cost and they would be subsequently exposed to liquidation but the recovery would also not be adequate from more businesses which are going to turn bad in the next years due to expectation of an impending recession hitting the entire globe, because the business has shutdown physically and it is going to get worse as per the predictions of various experts and institutional organisation so more and more loans are going to turn bad and it would be impacted in the books of accounts and the recoveries are also going to turn bad because the assets will be losing their realizable values.

So it can be summarised that the gross recoveries from the loans will be decreasing subsequently in coming 5 years.