BIS FSI Insights: Resolution of non-performing loans – policy options - Useful Links
BIS Financial Stability Institute Insights, October 2017
This paper draws on several country cases and extracts some practical insights about the success factors behind specific NPL resolution strategies. It discusses the advantages and disadvantages of individual resolution tools, drawing on country cases that shed light on how such tools have been used, and what constraints authorities faced in their application. Next, the paper matches the resolution tools to the key country characteristics, to identify how such characteristics help to define the policy space for NPL resolution.
Three main lessons can be helpful in designing a response to a crisis or a medium-term strategy for crisis preparedness. First, recognising the constraints that country-specific characteristics impose on resolution policies and the associated trade-offs can help authorities select the most successful policies. Second, with time, authorities can expand their resolution toolkit, by taking stock of any hindrances to specific NPL resolution policies and considering measures to remove them. Third, NPL resolution interacts with other policies during a crisis. Macroeconomic and macroprudential policies can mitigate NPL problems, but do not represent an alternative to dealing with the underlying NPLs. Clear communication helps to pave the way for a successful resolution policy and to establish a reference point for its ex post assessment.