A Strategy for Resolving Europe's Problem Loans

Staff Discussion Notes, September 24, 2015

Source details

Canonical URL

A Strategy for Resolving Europe's Problem Loans

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Shekhar Aiyar, Wolfgang Bergthaler, Jose M Garrido, Anna Ilyina, Andreas Jobst, Kenneth H Kang, Dmitriy Kovtun, Yan Liu, Dermot Monaghan, Marina Moretti
• Published: September 24, 2015
• Series: Staff Discussion Notes
• DOI: https://doi.org/10.5089/9781513591278.006

Summary

• Europe’s banking system is weighed down by high levels of non-performing loans (NPLs), which are holding down credit growth and economic activity.
• The discussion note uses a new survey of European country authorities and banks to examine structural obstacles that discourage banks from addressing their problem loans.
• A three pillared strategy is advocated to remedy the situation: (i) tightened supervisory policies, (ii) insolvency reforms, and (iii) the development of distressed debt markets.

Key findings from the survey and analysis

• High levels of NPLs are correlated with depressed credit growth and restrained economic activity in Europe.
• Structural obstacles discourage banks from resolving problem loans; these obstacles are explored through a new survey of European country authorities and banks.

Three-pillared strategy (policy recommendations)

• Tightened supervisory policies
  • Strengthen supervision to incentivize timely recognition and resolution of problem loans.
• Insolvency reforms
  • Reform insolvency frameworks to improve recovery rates and speed of resolution.
• Development of distressed debt markets
  • Foster distressed debt markets to provide banks with market-based avenues for transferring or restructuring NPLs.

Subject areas and keywords (as listed)

• Subject: Asset and liability management, Banking, Debt restructuring, Distressed assets, Financial institutions, Financial sector policy and analysis, Loans, Nonperforming loans, Solvency
• Keywords: area bank, bank capitalization, bank profitability, book value, capital buffer, Debt restructuring, Distressed assets, Europe, expected return, Global, Loans, Nonperforming loans, NPL ratio, NPL resolution, profit sharing, real GDP, SDN, Solvency, unsecured debt

Content in this bundle

• _sdn1519
  • _sdn1519 (Markdown version)
  • _sdn1519 (PDF)
• A Strategy for Resolving Europe's Problem Loans: Technical Background Notes; September 2015
  • A Strategy for Resolving Europe's Problem Loans: Technical Background Notes; September 2015 (Markdown version)
  • A Strategy for Resolving Europe's Problem Loans: Technical Background Notes; September 2015 (PDF)