Non Performing Loans and the Macroeconomy

Chapter 2 of Working Group on NPLs in Central, Eastern and Southeastern Europe, March 2012

23 Pages Posted: 4 Oct 2012

See all articles by Gregorio Impavido

Gregorio Impavido

International Monetary Fund (IMF); World Bank

Christoph A. Klingen

International Monetary Fund (IMF) - European Department

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: 2012

Abstract

The boom-bust cycle in CESEE countries has left a legacy of non-performing loans (NPLs) in the region. In some countries NPLs reach levels comparable to those seen in the wake of earlier financial crises. Although the problem is serious, there are important differences in its gravity across countries and sectors and it is not found to be on a scale where it would imperil financial stability or where it would be symptomatic of a generalized debt overhang in the countries of the region. Rather, the danger lies in lingering NPLs becoming a drag on economic growth as they weigh on credit growth, which remains subdued in most of the region. More generally, unresolved NPLs tend to mute activity of overextended borrowers and hinder the reallocation of their assets to more productive uses. The clouded economic outlook for CESEE countries suggests that “growing out of the NPL problem” is probably not a realistic option for the region. Instead, a more pro-active and cooperative approach to NPL resolution is needed. This holds the promise of improved growth performance, with positive knock-on effects on banks’ asset quality and credit demand.

Keywords: Non perfromin loans, credit growth, Eastern Europe

JEL Classification: G21

Suggested Citation

Impavido, Gregorio and Klingen, Christoph A. and Sun, Yan, Non Performing Loans and the Macroeconomy (2012). Chapter 2 of Working Group on NPLs in Central, Eastern and Southeastern Europe, March 2012 . Available at SSRN: https://ssrn.com/abstract=2156325

Gregorio Impavido (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.imf.org

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Christoph A. Klingen

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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