Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution

By Kimberly Beaton, Thomas Dowling, Dmitriy Kovtun, Franz Loyola, Alla Myrvoda, Joel Chiedu Okwuokei, Inci Ötker, Jarkko Turunen

November 7, 2017

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Kimberly Beaton, Thomas Dowling, Dmitriy Kovtun, Franz Loyola, Alla Myrvoda, Joel Chiedu Okwuokei, Inci Ötker, and Jarkko Turunen. Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution, (USA: International Monetary Fund, 2017) accessed September 24, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The high level of nonperforming loans (NPLs) in the Caribbean has been, in large part, a legacy of the global financial crisis, but their persistence owes much to the weak economic recovery in the region, as well as to structural obstacles to their resolution. A comprehensive strategy is needed to address these impediments to sever the adverse feedback loops between weak economic activity and weak asset quality. This paper finds that NPLs are a drag on Caribbean growth and macro-financial links are strong: a deterioration in asset quality hinders bank lending and dampens economic activity, undermining, in turn, efforts to resolve problem loans. A multifaceted approach is needed, involving a combination of macro- economic policies to support growth and employment; strong supervisory frameworks to ensure macro-financial stability and create incentives for resolution; efforts to address informational gaps and deficiencies in insolvency and debt-enforcement frameworks; and development of markets for distressed loans. The institutional capacity constraints require coordination of reforms within the region and support from international organizations through capacity-building.

Subject: Banking, Collateral, Credit, Distressed assets, Financial institutions, Financial sector policy and analysis, Loans, Money, Nonperforming loans

Keywords: Affect bank lending, Asset quality, Caribbean, Collateral, Credit, Distressed assets, Economic activity, Global, Loans, Macro-financial linkages, Nonperforming loans, NPL ratio, NPL resolution, Resolution, The Caribbean, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/230
Stock No:

WPIEA2017230
ISBN:

9781484326572
ISSN:

1018-5941

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