Nine years after the onset of the financial crisis which led to the global “Great Recession,” high levels of Non-performing loans (NPLs) remain a major problem in the financial sectors of many EBRD countries of operation. NPLs depress credit activity and growth, thus leading to a vicious circle constraining economic development and, ultimately, job creation. In recent years, a number of EU-wide and regional initiatives have been launched to address the NPL problem. EBRD has been at the forefront of many of these initiatives, including the two cross-regional flagship Vienna Initiative and NPL Initiative, through structural reform policy dialogue and assistance, capacity-building, transparency and knowledge-sharing, in particular in the Central, Eastern and South-eastern Europe (CESEE) region.
In light of the work undertaken by EBRD and others in the CESEE region and progress achieved to date, EBRD is now considering expanding and replicating the work done on NPL resolution in two of its other regions of activity: Southern and Eastern Mediterranean (SEMED, comprising Morocco, Tunisia, Egypt, Jordan, Turkey and Lebanon) and Central Asia (CA, comprising Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Mongolia). To that end, EBRD asked the Capstone team to explore and highlight the following:
- Drawing from the experience spanning 4 decades, the Capstone team will provide best practices (and “non-best practices”) in NPL resolution which could be used and replicated when new high-NPL episodes arise;
- Compile a number of regional case studies to take stock of the extent of the NPL problem, identify the root causes of the banking sector difficulties and the current impediments to NPL resolution in SEMED and CA;
- Categorize NPL issues and propose actionable recommendations for active NPL resolution policies in SEMED and CA.