Asian economies have seen recent rises in nonperforming loans. This paper analyzed the determinants, macrofinancial feedback effects, and implications of NPLs for financial stability. It also examined the determinants and evolution of bank-specific NPLs in Asia and found that macroeconomic conditions and bank-specific factors—such as rapid credit growth and excessive bank lending—contribute to the buildup of NPLs. It demonstrated that a shock to the NPL ratio reduces credit supply, increases unemployment, and slows overall economic activity.

A selection of photos taken from the ADB-ECB workshop on NPL resolution in Asia and Europe, held from 10-11 February 2020 at the Asian Development Bank headquarters in Manila, The Philippines.

The presentation highlights the approach taken by the Bangko Sentral ng Pilipinas (BSP) to respond to NPLs in the Philippines. The bank NPL management and resolution since the Asian financial crisis has been a combination of legislative measures, policies, and reforms. The legal and regulatory frameworks as well as trends and development of the NPL situation were tackled.

The presentation elaborated on initiatives such as multiple-creditor out-of-court workout schemes and public AMCs, taken by Thailand to resolve the debts. Among the many initiatives launched, the Corporate Debt Restructuring Advisory Committee was considered as key. The committee’s definitive timetable for restructuring, a warning letter, and a fine given by the Bank of Thailand to a non-compliant creditor was found to be effective in removing NPLs.

The speaker provided an overview of Mongolia’s experience with nonperforming loans and the interventions of development partners. The measures taken under the IMF and ADB programs helped strengthen the overall banking system, with important reforms taken in the direction of banking sector stabilization. However, challenges impeding the quick resolution of NPLs such as inefficiencies in the legal system and low recovery rates of distressed assets still remain. Furthermore, earlier attempts to establish an AMC have failed which caused a loss of public trust in the government.

This presentation illustrated ECB’s contribution to NPL resolution in the Euro area. Key among these was the implementation of the Single Supervisory Mechanism (SSM) implemented in 2014 and the issuance of the 2017 ECB Guidance on NPLs.

This paper featured European country case studies and drew possible policy lessons for Asia regarding NPL resolution and NPL market development, with a focus on national policy choices in response to the rise in NPLs and excess private debt following the global financial crisis. It also assessed the effectiveness of national strategies including the roles of bank-led and market solutions in addressing national impediments to NPL resolution.

This paper estimated the impact of NPLs on bank lending and macroeconomic conditions in twelve euro area countries using a panel Bayesian VAR model.