How to Assess the Benefits of Nonperforming Loan Disposal in Sub-Saharan Africa Using a Simple Analytical Framework
IMF How To Notes, June 8, 2021
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- How to Assess the Benefits of Nonperforming Loan Disposal in Sub-Saharan Africa Using a Simple Analytical Framework
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Bibliographic details
- Authors: Irina Bunda, Zhangrui Wang
- Published: June 8, 2021
- Series: IMF How To Notes
- DOI: https://doi.org/10.5089/9781513583099.061
Background
- The coronavirus (COVID-19) crisis has hit financial systems across Africa and is likely to deteriorate banks’ balance sheets.
- The largest threat to banks pertains to their loan portfolios, since many borrowers have faced a sharp collapse in their income and therefore have difficulty repaying their obligations as they come due.
- This could lead to a sharp increase in nonperforming loans (NPLs) in the short to medium term.
- The publication is an IMF How To Note intended to provide a simple analytical framework (including an Excel template) to assess the benefits of NPL disposal in Sub-Saharan Africa.
Key Findings and Analytical Focus
- Primary finding: COVID-19–related income shocks to borrowers increase the risk of a sharp rise in NPLs.
- Analytical focus:
- Assessment of bank loan portfolios and potential deterioration.
- Evaluation of disposal strategies for distressed assets.
- Consideration of management cost and implications for capital requirements.
- Subject areas explicitly covered: Collateral, Distressed assets, Economic sectors, Financial crises, Financial institutions, Financial sector policy and analysis, Financial statements, Loans, Nonperforming loans, Public financial management (PFM).
Tools and Resources Provided
- An Excel template is linked to the note to operationalize the simple analytical framework.
- The How To Note format includes stepwise guidance for assessing disposal benefits (full methodological and operational detail in the 22-page publication).
Policy Implications and Recommendations (as framed by the note)
- Evaluate the costs and benefits of NPL disposal strategies in the context of pandemic-related loan deterioration.
- Incorporate management costs and implications for bank capital requirements when designing disposal strategies.
- Use the provided analytical framework and Excel template to inform policy decisions on distressed asset resolution in Sub-Saharan Africa.
Metadata and Publication Identifiers
- Authors: Irina Bunda, Zhangrui Wang
- Date: June 8, 2021
- Pages: 22
- Series: How-To Note No 2021/006
- Issue: 006
- DOI: https://doi.org/10.5089/9781513583099.061
- Stock No: HTNEA2021006
- ISBN: 9781513583099
- ISSN: 2522-7912
How to Assess the Benefits of Nonperforming Loan Disposal in Sub-Saharan Africa Using a Simple Analytical Framework, Irina Bunda, and Zhangrui Wang, June 8, 2021.
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- Htnea2021006