COVID-19 and Non-Performing Loans: Lessons from past Crises

7 Pages Posted: 30 Jun 2020

See all articles by Anil Ari

Anil Ari

International Monetary Fund

Sophia Chen

International Monetary Fund (IMF) - Research Department

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Date Written: May 27, 2020

Abstract

During crises, the number of loans that cannot be paid back increases. What are the lessons from past crises for non-performing loan resolution after COVID-19? In this article we use a new database covering non-performing loans (NPLs) in 88 banking crises since 1990 to find out. The data show that dealing with NPLs is critical to economic recovery. Compared with the 2008 crisis, some factors are conducive to NPL resolution this time: banks have higher capital, the forward-looking IFRS 9 accounting standards can help NPL recognition, and the COVID-19 crisis was not preceded by a credit boom. However, other factors could make NPL resolution more challenging: government debt is substantially higher, banks are less profitable, and corporate balance sheets are often weak.

Keywords: COVID-19, Debt Overhang, Non-Performing Loans; Crisis; Resolution

JEL Classification: E32, E44, G21, N10, N20

Suggested Citation

Ari, Anil and Chen, Sophia and Ratnovski, Lev, COVID-19 and Non-Performing Loans: Lessons from past Crises (May 27, 2020). Available at SSRN: https://ssrn.com/abstract=3632272 or http://dx.doi.org/10.2139/ssrn.3632272

Anil Ari

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/anlari/

Sophia Chen

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

700 19th Street NW
Washington, DC 20431
United States

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

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

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

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