Assessing the Effectiveness of Banking Sector Nonperforming Loan Resolution Policies and Measures

Previous financial crises have demonstrated the long-lasting negative impact NPLs can have on financial stability and the economy, as the effects of elevated NPL levels persist beyond crisis periods. Consequently, the identification of policy options to effectively manage and respond to a buildup in NPLs has gained attention in recent years. Employing a dataset comprising macroeconomic and financial variables of 76 economies from 1996-2016, the authors assessed the effectiveness of several NPL resolution measures. The paper found that both favorable macroeconomic conditions and public asset management companies significantly increase the probability of experiencing a sharp drop in the NPL ratio.