This Capstone project documented the causes and resolutions of high stock of Non-performing loans (NPLs) in five target countries: Egypt, Jordan, Kazakhstan, Mongolia, and Tunisia. To inform future NPL resolutions in these countries, the report drew lessons from countries that experienced similar NPL problems including Chile, Colombia, Ireland, Japan, Mexico, Thailand, and Romania.
The Capstone team found that the resolution framework in five target countries can be improved in these areas:
- Data availability, transparency and integrity are essential to efficiently leveraging policy tools.
- Provide useful public support to resolve NPLs, such as bank recapitalization, tax incentives and the creation of public asset management companies (AMC).
- When designing policies for NPL resolutions, it is critical to align incentives of borrowers, lenders and the authorities and to prevent moral hazard.
- Institutional quality is important for fast NPL resolution. However, it takes considerable amount of time to reform some institutions.
Among five target countries, this report found that Egypt and Jordan currently experience relatively minimal NPL problems. Recent measures undertaken by the Kazakhstan Government and the recovery of the domestic economy driven by world economic growth invite optimism regarding the NPL problem. Stronger economic performance will likely aid Mongolian banks in recovering non-performing assets in the coming year; however, Mongolia’s NPL problem will not be resolved without reforms addressing the systemic issues that exacerbated the NPL problem. Tunisia’s NPL problem continues to fetter the country’s economic growth and recent policy efforts have proven insufficient to remedy the issue at hand, and more drastic tools must be used.