How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans
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...
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| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/163151612172227669/How-Insolvency-and-Creditor-Debtor-Regimes-Can-Help-Address-Nonperforming-Loans http://hdl.handle.net/10986/35120 |
| Summary: | 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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