Tuesday , October 20 2020
Home / Amol Agrawal: Mostly Economics / COVID-19 and non-performing loans: lessons from past crises

COVID-19 and non-performing loans: lessons from past crises

Summary:
Anil Ari, Sophia Chen, and Lev Ratnovski of ECB in this research look at NPL story. During crises, the number of loans that cannot be paid back increases. What are the lessons from past crises for non-performing loan resolution after COVID-19? In this article we use a new database covering non-performing loans (NPLs) in 88 banking crises since 1990 to find out. The data show that dealing with NPLs is critical to economic recovery. Compared with the 2008 crisis, some factors are conducive to NPL resolution this time: banks have higher capital, the forward-looking IFRS 9 accounting standards can help NPL recognition, and the COVID-19 crisis was not preceded by a credit boom. However, other factors could make NPL resolution more challenging: government debt is substantially higher,

Topics:
Amol Agrawal considers the following as important: , , , ,

This could be interesting, too:

Amol Agrawal writes Banking troubles in India’s old private sector banks (with a slice of history)

Amol Agrawal writes ECB and Federal Reserve monetary policy is more similar than they look…

Amol Agrawal writes From hot air to cold hard facts: how financial markets are finally getting a grip on how to price climate risk and return

Amol Agrawal writes Money and legislation need to be adapted to digitalisation

Anil Ari, Sophia Chen, and Lev Ratnovski of ECB in this research look at NPL story.

During crises, the number of loans that cannot be paid back increases. What are the lessons from past crises for non-performing loan resolution after COVID-19? In this article we use a new database covering non-performing loans (NPLs) in 88 banking crises since 1990 to find out. The data show that dealing with NPLs is critical to economic recovery.

Compared with the 2008 crisis, some factors are conducive to NPL resolution this time: banks have higher capital, the forward-looking IFRS 9 accounting standards can help NPL recognition, and the COVID-19 crisis was not preceded by a credit boom. However, other factors could make NPL resolution more challenging: government debt is substantially higher, banks are less profitable, and corporate balance sheets are often weak.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

Leave a Reply

Your email address will not be published. Required fields are marked *