Impact of Centralized Management on Recovery Rates of Credit Loans

Using non-performing loans (NPLs) recovery data of a commercial bank in China, we investigate the recovery pattern of commercial banks for NPLs under centralized management. We find that centralized management can significantly improve the collection efficiency of NPLs, as reflected in the higher recovery rate, higher probability of full recovery and lower probability of zero recovery of NPLs under centralized management. Centralized management has a heterogeneous impact on contracts with different characteristics or different client groups. In terms of contract characteristics, centralized management has a greater increase in recovery rates for contracts with small amounts, difficult recoveries and contracts with additional information. In terms of client groups, centralized management has improved the recovery rate more for married, childless, and highly educated customers. Further research find that the centralized management model works by eliminating the distance from the head office to the branch, reducing the marginal cost of NPL management, and improving the efficiency of information utilization.