Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution
55 Pages Posted: 1 Dec 2017
Date Written: November 2017
The high level of nonperforming loans (NPLs) in the Caribbean has been, in large part, a legacy of the global financial crisis, but their persistence owes much to the weak economic recovery in the region, as well as to structural obstacles to their resolution. A comprehensive strategy is needed to address these impediments to sever the adverse feedback loops between weak economic activity and weak asset quality. This paper finds that NPLs are a drag on Caribbean growth and macro-financial links are strong: a deterioration in asset quality hinders bank lending and dampens economic activity, undermining, in turn, efforts to resolve problem loans. A multifaceted approach is needed, involving a combination of macro- economic policies to support growth and employment; strong supervisory frameworks to ensure macro-financial stability and create incentives for resolution; efforts to address informational gaps and deficiencies in insolvency and debt-enforcement frameworks; and development of markets for distressed loans. The institutional capacity constraints require coordination of reforms within the region and support from international organizations through capacity-building.
Keywords: Trinidad and Tobago, Western Hemisphere, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Antigua and Barbuda, Asia and Pacific, Bahamas, The, Barbados, Macro-financial linkages, nonperforming loans, resolution, the Caribbean, Financial Markets and the Macroeconomy
JEL Classification: E32, E44, E51, G21
Suggested Citation: Suggested Citation