Publication: How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans
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2021
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2021-02-08
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In modern economies, banks are typically the primary financial intermediaries and are fundamental to a stable financial system, one that is capable of efficiently allocating resources, assessing and managing financial risks, maintaining employment levels close to the economy’s natural rate, and eliminating price movements of real or financial assets that will affect monetary stability or employment levels. When banks are not able to recover the money lent, the financial system and the economy at large may suffer. Non-performing loans (NPLs) erode the profitability and can threaten the solvency of banks, and when a sufficiently large volume of loans is affected, they can potentially threaten financial sector stability. Efficient legal regimes that promote effective insolvency and creditor/debtor rights (ICR) are important tools that facilitate debt recovery, reduce the cost of credit, increase access to finance and, as a result, help improve NPL levels. This policy note examines the relationship between effective ICR systems and NPL levels.
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“World Bank Group. 2021. How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans. Equitable Growth, Finance and Institutions Notes;. © World Bank. http://hdl.handle.net/10986/35120 License: CC BY 3.0 IGO.”
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