Non Performing Loans In Cesee

The paper investigates the non-performing loans (NPLs) in Central, Eastern and South-Eastern Europe (CESEE) in the period of 1998–2011. The paper finds that the level of NPLs can be attributed to both macroeconomic conditions and banks’ specific factors, though the latter set of factors was found to have a relatively low explanatory power. The examination of the feedback effects broadly confirms the strong macro-financial linkages in the region. While NPLs were found to respond to macroeconomic conditions, such as GDP growth, unemployment, and inflation, the analysis also indicates that there are strong feedback effects from the banking system to the real economy, thus suggesting that the high NPLs that many CESEE countries currently face adversely affect the pace economic recovery.

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

Financial Soundness Indicators (FSIs) are measures that indicate the current financial health and soundness of a country's financial institutions, and their corporate and household counterparts. FSIs include both aggregated individual institution data and indicators that are representative of the markets in which the financial institutions operate. FSIs are calculated and disseminated for the purpose of supporting macroprudential analysis--the assessment and surveillance of the strengths and vulnerabilities of financial systems--with a view to strengthening financial stability and limiting the likelihood of financial crises. Financial Soundness Indicators: Compilation Guide is intended to give guidance on the concepts, sources, and compilation and dissemination techniques underlying FSIs; to encourage the use and cross-country comparison of these data; and, thereby, to support national and international surveillance of financial systems.

The profitability of Italian banks depends, among other factors, on the strength of the ongoing economic recovery, the stance of monetary policy, and the beneficial effects of current and past reforms, notably to address structural obstacles to resolving nonperforming loans (NPLs) and to foster banking sector consolidation. Improved profitability would enable banks to raise capital buffers and accelerate the cleanup of their balance sheets. This paper investigates quantitatively the current and prospective earnings capacity of Italian banks. A bottom-up analysis of the 15 largest Italian banks suggests that the system is on the whole profitable, but that there is significant heterogeneity across banks. Many banks should become more profitable as the economy recovers, but their capacity to lend depends on the size of their capital buffers. However, a number of smaller banks face profitability pressures, even under favorable assumptions. There is thus a need to push ahead decisively on cleaning up balance sheets, including through cost cutting and efficiency gains.

This year, the Vienna Initiative marks its 10th anniversary. For this special occasion, the Steering Committee has prepared a commemorative book, with essays and contributions from the key actors and institutions instrumental to the work of the Vienna Initiative since its inception. This volume provides a unique window on the Vienna Initiative's innovative crisis mitigation activities, its subsequent evolution and its current scope. At the time of the Lehman crisis, international institutions, national authorities and international commercial banks collaborated closely, taking full responsibility for their strategies in the CESEE region and voluntarily providing firm commitments on their activities. In the form of the Vienna Inititive, they built a functioning coordination platform, capable of transforming and evolving according to changing needs. Ten years later, this coordination platform remains an important of effective inter-institutional and private-private sector cooperation. The establishment of the Vienna Initiative was far from easy. However, given the size of euro area banks' cross-border operations in CESEE, a disorderly deleveraging would have been very costly for both CESEE countries and the foreign banks. With this in mind, the main stakeholders eventually got together to participate in the Vienna Initiative and achieve its main objective. The foreign banking groups committed to maintain their presence in the region, while the EIB, EBRD and the World Bank Group provided substantial financing to banks and the real economy. These efforts had a major positive impact on the region. They helped curb liquidity disruptions and restore confidence in the banking system, while alleviating balance of payments pressures. This coordinated response from commercial banks and IFIs was a prerequisite for the success of the IMF-funded macroeconomic adjustment programs in several CESEE countries. Over time, the Vienna Initiative has transformed itself from a crisis mitigation instrument to a broader coordination platform, dealing with the unique challenges of widespread cross-border banking with regulatory and supervisory interdependence, while supporting the emergence of an efficient, deep and sound banking and financial sector that supports growth in the region. In particular, with CESEE countries on a solid recovery path, the focus has shifted to tackling the legacy problem of high NPLs, or to dealing with the impact of the EU's upgraded institutional framework – particularly the creation of the Banking Union – on the host countries, most of which do not participate in the Banking Union. With the region needing to transform, up-scale its innovation capabilities and adjust to technological change, a dedicated working group has been set up to propose measures that could improve access to finance for innovative firms which typically lack tangible assets and thus may have hard time obtaining standard bank loans in a system that still offers limited alternatives. The Vienna Initiative has been a major achievement of international coordination and an important instrument for the future of the CESEE region.

This paper assesses the determinants of NPLs in the Eastern Caribbean Currency Union (ECCU) and whether a deterioration in asset quality may result in negative feedback effects from the banking system to economic activity. The results suggest that the deterioration in asset quality can be attributed to both macroeconomic and bank-specific factors. Banks with stronger profitability and lower exposure to the construction sector and household loans tend to have lower NPLs. Further, some evidence indicates that foreign owned banks systematically have lower NPLs than domestic banks, pointing to the presence of important differences across bank practices with an impact on asset quality. Finally, the results emphasize the strength of macrofinancial feedback loops in the ECCU.

This book explores the issue of private sector over-indebtedness following the recent financial crisis. It addresses the various challenges for policymakers, investors and economic agents affected by applied remedial policies as the private non-financial sector in Europe continues to face increased challenges in servicing its debt, with the problem mainly concentrated in several countries in the EU periphery and Eastern Europe. Chapters from expert contributors address reduced investment as firms concentrate on deleveraging and repairing their balance sheets, curtailed consumer spending, depressed collateral values and weak credit creation. They examine effective policies to facilitate private sector debt restructuring which may involve significant upfront costs in terms of time to implement and committed budgetary resources, as well as necessary reforms required to improve the broader institutional framework and judicial capacity. The book also explores the issue of over indebtedness in the household sector, contributing to the literature in establishing best practice principles for household debt.

This book discusses the most critical issues relating to the recovery of bad loans – a major problem that European banks urgently need to address and resolve. The book describes, in an innovative but also pragmatic way, the new approaches, techniques, and models for optimal management of non-performing loans (NPLs) and the maximization of their recovery value. Drawing on a rigorous academic background and the latest real-life experiences of major European banks, it details a novel means of dealing with NPLs based on velocity, the holistic use of tools and “accelerators”, and the active management of collaterals. Also, there is a specific focus on the smart use of “big data” and on the development of “bad banks”, at both the single bank and the system-wide level. Ultimately, credit workout is defined as a core capability for any competitive bank – and as a quite interesting business opportunity for independent, specialized “alpha” players.