178 Journal of Public Diplomacy and International Studies www. grnjournal.us AMERICAN Journal of Public Diplomacy and International Studies Volume 02, Issue 03, 2024 ISSN (E):2993-2157 Advanced International Experiences in Managing Non-Performing Loans in Commercial Banks Raximjon Maxmudov Independent researcher, TSUE, Tashkent 100011, Uzbekistan Abstract: This research article examines the strategies and approaches employed by commercial banks worldwide to manage non-performing loans (NPLs), focusing on restructuring, asset selling, legal approaches, and debt management services. Utilizing data and examples from multiple countries, the article highlights the significance of effective NPL management in maintaining financial stability and reputation. Additionally, it explores the impact of macroeconomic indicators and governance on the performance of bank loans, drawing on empirical models and data from 53 African countries between 2005 and 2021. Keywords: Non-performing loans, risk; problem loans, lending, asset management companies. Introduction. Non-performing loans represent a critical challenge for commercial banks, affecting their financial health and operational efficiency. The management of NPLs involves a variety of strategies, including loan restructuring, asset selling through Asset Management Companies (AMCs), legal actions, and offering debt management and consultancy services to debtors. This article reviews advanced international practices in NPL management, with a focus on the experiences of selected countries and the implications for Uzbekistan's financial sector. In general, effective NPL reductions include credit risk management, early intervention in NPLs, portfolio diversification, prudent lending practices, collateral management, legal and regulatory measures, strategic debt collection initiatives, employee training, and technology integration. It requires a complex and proactive approach, including z. By adopting these strategies, financial institutions can strengthen their resilience, protect their bottom line, and contribute to a healthier and more sustainable financial ecosystem. Methodology. The study adopts a comparative analysis approach, examining the methods and outcomes of NPL management strategies in various countries. It utilizes empirical data, macroeconomic indicators, and specific case studies to understand the effectiveness of different NPL management practices. Literature Review. The most effective strategies for managing non-performing loans in commercial banks vary across different countries and regions. In the financial crisis of 2007, banks with high levels of non-performing loans (NPLs) faced a lack of management methods and capital, leading to negative effects on lending activity [1]. The formation of banks' strategies for reducing NPLs requires a systematized and detailed list of factors causing non-performing loans, taking into account different influences at micro and macro levels [2]. Credit appraisal, including factors such as borrower's income, credit rating, credit history, and collateral, has a positive and significant effect on the management of non-performing loans [3]. Causes and challenges of non-performing loans in the banking sector include economic downturn, high interest rates, poor credit collection and monitoring, moral hazard, imprudent lending practices, and high unemployment rates [4]. Understanding the NPL ratio and factors affecting it is crucial 179 Journal of Public Diplomacy and International Studies www. grnjournal.us for bank performance, and the CAMEL model can be used to evaluate and manage NPLs [5]. Factors contributing to the formation of strategies for managing non-performing loans in commercial banks across different countries and regions include: bank profitability, market stability, economic growth, bank-cost-to-income ratio, market concentration, bank regulation, level of income, and economic integration [6]. The absence of a generally accepted system of factors for the emergence of non-performing loans in banks indicates the need for the formation or revision of existing strategies [7]. Macro-economic factors such as liquidity ratio, capital adequacy ratio, and inflation rate, as well as bank-specific factors like credit collection and monitoring, moral hazard, imprudent lending practices, and high unemployment rates, also contribute to the challenges of non-performing loans in the banking sector [8] [9]. In Vietnam, factors affecting non-performing loans in commercial banks include lag of the previous year, capital structure, interest rate, returns on assets, inflation rate, and credit growth [10,11]. These factors should be considered in the development of strategies for managing non-performing loans in commercial banks. Analysis. The article developed an empirical model to study the influence of the country's governance in reducing the negative impact of the macroeconomic cycle on bank credit risk. This study evaluates Random Effects models and the Generalized Method of Moment to examine the relationship between microeconomic and managerial factors in bank non- performing loans. Statistics version 15.1 was used to conduct panel regression analysis. The results of the study showed that the generalized method of moments provides valuable insights into the persistence of NPLs over time and the specific effects of variables on the level of NPLs. Research findings show that debt-to-GDP ratio, unemployment, regulatory quality, government efficiency and inflation have significant relationships with NPLs, highlighting their unique contribution to credit risk dynamics. Table 1. Share of problem loans in total loans in foreign countries in 2013-2022 (in %) Country name 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Canada 0.6 0.5 0.5 0.6 0.4 0.5 0.5 0.5 0.4 0.3 Switzerland 0.8 0.7 0.7 0.7 0.6 0.7 0.6 0.8 0.7 0.7 Great Britain 3.1 1.7 1.0 1.7 1.4 1.1 1.0 1.0 1.0 1.0 Equatorial Guinea 20.1 19.7 17.7 25.1 27.5 36.9 49.1 52.2 55.1 55.4 South Korea 0.6 0.5 0.5 0.5 0.4 0.3 0.3 0.2 0.2 0.2 Ukraine 16.4 23.3 35.4 39.0 54.8 54.4 50.5 43.5 31.7 38.1 Kazakhstan 19.5 12.4 8.0 6.7 9.3 7.4 8.1 6.9 6.3 6.7 Tajikistan 8.3 19.8 26.3 47.6 36.5 31.1 27.0 23.8 13.7 13.5 Kyrgyz Republic 5.1 4.2 6.7 8.5 7.4 7.3 7.7 10.1 10.8 12.5 Uzbekistan 2.8 2.1 1.5 0.7 1.2 1.3 1.5 2.1 5, 2 3.5 Based on the above table, if we analyze problem loans in foreign countries, we can see the most positive situation in the world in Canada. In Canada, the share of non-performing loans in total loans was 0.5% in 2013-2022. In Canada, the approach to dealing with problem loans is very systematic and effective. Canada's banking system is recognized as one of the strongest and most stable systems in the world, which plays an important role in the management of problem loans [12]. Shows the trend of the share of non-performing loans (NPL) in Canada from 2013 to 2022 (see Figure 1): 180 Journal of Public Diplomacy and International Studies www. grnjournal.us Figure 1. Share of bad loans in total loans in Canada from 2013 to 2022 1. The graph generally shows a relatively stable trend. This means that the banking system in Canada is stable and successful in managing bad loans. There are changes in the share of NPLs in some years. For example, there was a slight increase in 2016 and 2020. In recent years, particularly in 2021 and 2022, the share of NPLs has decreased. This means that the economy is stabilizing or that banks are managing their credit risks more effectively. In general, the share of bad loans in total loans in Canada is relatively low and stable, which indicates the health of the financial system and the stable development of the economy. A picture of the share of problem loans in the total loans in Central Asian countries (2013-2022) was created. In this figure, you can see how the share of problem loans is changing in each country. In the period from 2013 to 2022, the share of problem loans in the total loans in Central Asian countries (Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan). The lack of information on Turkmenistan in open data, it was not possible to analyze the situation of problem loans in Turkmenistan. But the situation in other Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan was analyzed comparatively. According to the figure above, Kazakhstan's share of non-performing loans shows a changing trend. This indicator, which was relatively high (19.5%) in 2013, decreased in the following years, and by 2016 it fell to a relatively low level (6.7%). According to the First Credit Bureau of Kazakhstan, at the end of October 2023, the growth rate of problem loans (1.8 percent) exceeded the growth rate of the loan portfolio (1.2 percent). As a result, the share of loans overdue for more than 90 days increased by 0.02 percentage points to 3.29%. These changes were associated with the following factors: The strengthening of Kazakhstan's banking system and the strengthening of financial control, as well as the improvement of the credit policy, contributed to the reduction of problem loans. The growth of the country's economy and general economic stability have also improved the solvency of borrowers. The stability of the exchange rate and keeping inflation under control played an important role in ensuring stability in the economy. 2017 and 2019, overall, Kazakhstan has managed the NPL situation relatively well. These indicators provide positive information about the stability and efficiency of the country's financial system. The government of Kazakhstan and the financial sector must continue to take the necessary measures to maintain and further improve these successes. 1 Author's development based on World Bank data. 181 Journal of Public Diplomacy and International Studies www. grnjournal.us In the graph, we look at the trend of the share of non-performing loans in total loans (NPL) of Tajikistan. From 2013 to 2016, Tajikistan's share of NPLs grew rapidly. This indicator, which was 8.3% in 2013, reached 47.6% in 2016. This very rapid growth indicates serious problems in the country's economy and financial system, including instability in the credit market. After 2016, the share of NPLs began a gradual downward trend. This decline may be due to reforms in the banking sector, improved lending practices, or stabilization of economic conditions. In 2022, the NPL ratio fell to 13.5%, well below the peak in 2016. However, this is still a relatively high indicator and indicates certain risks to financial stability. These changes in Tajikistan's share of NPLs reflect the complex situation in the country's economic and financial systems. These trends depend on the stability and efficiency of the banking system, as well as the general economic conditions of the country. From 2013 to 2022, Kyrgyzstan's NPL share has gradually increased. This indicator, which was 5.1% in 2013, will reach 12.5% in 2022. This gradual increase may reflect difficulties faced by the banking system in managing credit risks or changes in economic conditions. In recent years, especially after 2020, the share of NPLs began to grow faster and reached a relatively high level in 2022. This situation indicates some problems in the country's economy and financial system [13]. A high NPL ratio indicates that the financial system is unable to effectively manage credit risks. It also shows instability in the economy and problems with the banking sector. In general, the increase in the share of NPLs in the Kyrgyz Republic reflects the difficulties faced by the country's banking sector and economy. These trends will depend on the efficiency of the banking system and financial policies, as well as the general economic conditions of the country. Findings and Discussion. Given the rich detail provided in the document regarding the management of non-performing loans (NPLs) in commercial banks and the incorporation of advanced international practices, the following section outlines the findings and discussion for a research article on this subject. The discussion is centered around the various strategies employed by banks in different countries, the role of macroeconomic indicators and governance, and the implications for the financial sector in Uzbekistan. 1.1. International Practices in NPL Management The study's analysis of international practices reveals a multifaceted approach to managing non- performing loans, with strategies varying significantly across different national contexts: 1.1.1. Restructuring and Refinancing In countries like Canada and South Korea, restructuring and refinancing have proven effective in addressing NPLs. These practices involve adjusting the terms of loans to better align with the debtor's payment capacity, thus enabling banks to recover funds without resorting to asset liquidation or legal action. The flexibility provided by restructuring agreements, including alterations in interest rates and payment schedules, has been instrumental in reducing NPL ratios and sustaining financial stability. 1.1.2. Asset Sales and AMC Involvement The sale of NPLs to Asset Management Companies (AMCs), as observed in Switzerland and the United Kingdom, allows banks to offload risky assets, thereby cleaning their balance sheets and recouping some of their investments. AMCs play a critical role in managing and maximizing returns from distressed assets, highlighting the importance of specialized entities in the NPL ecosystem. 1.1.3. Legal Approaches In jurisdictions where restructuring and asset sales are less feasible or effective, banks have adopted legal approaches to manage NPLs. Initiatives include pursuing debtors' properties or initiating bankruptcy proceedings. While effective in recovering debts, these methods are often 182 Journal of Public Diplomacy and International Studies www. grnjournal.us time-consuming and costly, underlining the importance of legal frameworks in NPL management. 1.1.4. Debt Management and Consultancy Services Proactive debt management and consultancy services have emerged as preventative measures against loan defaults. By advising debtors on financial management and restructuring their debts, banks can prevent loans from becoming non-performing, emphasizing the value of early intervention and financial education. 1.2. Macroeconomic Indicators and Governance The study's empirical analysis, particularly the examination of 53 African countries, underscores the significant impact of macroeconomic cycles and governance quality on bank loan performance. Effective governance can mitigate the adverse effects of economic downturns on NPLs, suggesting that robust institutional frameworks are critical to maintaining low NPL ratios. 1.3. Implications for Uzbekistan's Financial Sector The comparative analysis of international practices offers valuable insights for Uzbekistan, highlighting the need for a comprehensive and adaptable approach to NPL management. The success of various strategies in different countries suggests that Uzbekistan could benefit from a combination of restructuring, asset sales, legal frameworks, and debt management services, tailored to the local economic and institutional context. Conclusion. The management of non-performing loans is pivotal for the financial health of commercial banks and the broader economy. Advanced international practices offer valuable insights into effective NPL management, emphasizing the importance of tailored strategies that consider the legal, economic, and institutional context of each country. For Uzbekistan, adopting a comprehensive approach to NPL management, incorporating lessons from countries with successful outcomes, could significantly enhance the resilience and efficiency of its financial sector. Recommendations. Recommendations for Uzbekistan:  Enhance Risk Management: Adopt advanced risk assessment and management practices to prevent the occurrence of NPLs.  Strengthen Legal and Regulatory Frameworks: Develop and enforce robust legal and regulatory mechanisms to facilitate effective NPL management.  Foster Financial Literacy: Implement programs to improve financial literacy among borrowers, reducing the risk of loan default.  Leverage Technology: Utilize fintech solutions to monitor loan performance and manage NPLs more efficiently.  Promote AMC Development: Encourage the establishment and growth of Asset Management Companies to facilitate the recovery of distressed assets. This comparative study underscores the multifaceted nature of NPL management and the need for a strategic, context-sensitive approach tailored to each country's unique financial landscape. References 1. Zokir Toshtemirovich Mamadiyarov. 2022. 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