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Webinar series on NPL Resolution in ECA

March 2-25, 2021

Online

Health mask over Euro currency

Photo: Pla2na / Shutterstock

  • COVID-19 and Non-Performing Loan Resolution in the Europe and Central Asia Region

    The pandemic prompted a series of emergency measures that resulted in sharp falls in levels of economic activity, household income, and enterprise revenues and thus loan repayment capacity. With borrower distress on the increase, policymakers around the world have introduced a variety of relief measures to flatten the bankruptcy curve and to provide breathing space to distressed debtors, particularly through temporary payment and enforcement moratoria. With borrower relief measures still in place in many countries, pressures on asset quality are not yet fully reflected in reported asset quality indicators. Looking ahead, rising borrower distress will inevitably translate into fresh pressures on asset quality in the banking sector, that will become more apparent once the current support measures are phased out.

    The availability of reliable, up-to-date, and economically meaningful data about individual banks’ exposure to problem assets is a necessary first step towards NPL resolution. Policymakers need this information to understand the magnitude of the problem, and to be able to articulate a well-informed NPL resolution strategy. This information is also required to ascertain whether banks are provisioning appropriately for credit losses, to evaluate banks’ true financial condition, and to undertake appropriate supervisory action vis-à-vis banks with a high or increasing NPL exposure. Regulators have been balancing the need to preserve banks’ capital for the recovery on the one hand with the public interest in safe and sound banks and with financial stability on the other. Going forward, tensions between these two competing needs may become more apparent as the impact of COVID-19 on banks’ balance sheets is becoming palpable.

    This webinar discusses regulatory and supervisory policies relevant for the timely identification of NPLs. It is part of a series of presentations based on a recent policy note prepared jointly by the Financial Sector Advisory Center (FinSAC) and the Financial Stability and Integrity (FSI) and Financial Inclusion, Infrastructure & Access (EFNFI) Units. The note draws on ECA region’s experiences in NPL resolution in the aftermath of the global financial crisis, with an emphasis on the lessons most relevant for the current circumstances facing policymakers in ECA countries and beyond. 

    What will you learn?

    In this session, we will discuss a variety of regulatory and supervisory themes that are high on the agenda of prudential regulators and central banks around the world, including:

    • The importance of robust regulatory definitions, aligned with international best practices, and their implementation in ECA countries;
    • The regulatory, supervisory, and accounting treatment of the moratoria and other borrower support measures introduced in the early stages of the COVID-19 pandemic;
    • Exit strategies from the current extraordinary borrower support measures;
    • Effective supervisory enforcement in a context of increased stress on banks’ asset quality and capital.
  • COVID-19 and Non-Performing Loan Resolution in the Europe and Central Asia region

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