Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution

55 Pages Posted: 1 Dec 2017

See all articles by Kimberly Beaton

Kimberly Beaton

International Monetary Fund (IMF) - Research Department

Thomas Dowling

International Monetary Fund (IMF) - Western Hemisphere Department

Franz Loyola

International Monetary Fund (IMF)

Dmitriy Kovtun

International Monetary Fund (IMF)

Alla Myrvoda

International Monetary Fund (IMF)

Joel Chiedu Okwuokei

International Monetary Fund (IMF)

Inci Otker-Robe

International Monetary Fund (IMF) - Monetary and Capital Markets Department; World Bank

Date Written: November 2017

Abstract

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

Beaton, Kimberly and Dowling, Thomas and Loyola, Franz and Kovtun, Dmitriy and Myrvoda, Alla and Chiedu Okwuokei, Joel and Ötker-Robe, İnci, Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution (November 2017). IMF Working Paper No. 17/230, Available at SSRN: https://ssrn.com/abstract=3079557

Kimberly Beaton (Contact Author)

International Monetary Fund (IMF) - Research Department

700 19th Street NW
Washington, DC 20431
United States

Thomas Dowling

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

700 19th Street NW
Washington, DC 20431
United States

Franz Loyola

International Monetary Fund (IMF) ( email )

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

Dmitriy Kovtun

International Monetary Fund (IMF) ( email )

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

Alla Myrvoda

International Monetary Fund (IMF) ( email )

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

Joel Chiedu Okwuokei

International Monetary Fund (IMF) ( email )

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

İnci Ötker-Robe

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States
202 623-7000 (Phone)
202 623-4661 (Fax)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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