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Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution

Author

Listed:
  • Ms. Kimberly Beaton
  • Mr. Thomas Dowling
  • Dmitriy Kovtun
  • Franz Loyola
  • Ms. Alla Myrvoda
  • Mr. Joel Chiedu Okwuokei
  • Ms. Inci Ötker
  • Mr. Jarkko Turunen

Abstract

The high level of nonperforming loans (NPLs) in the Caribbean has been, in large part, a legacy of the global financial crisis, but their persistence owes much to the weak economic recovery in the region, as well as to structural obstacles to their resolution. A comprehensive strategy is needed to address these impediments to sever the adverse feedback loops between weak economic activity and weak asset quality. This paper finds that NPLs are a drag on Caribbean growth and macro-financial links are strong: a deterioration in asset quality hinders bank lending and dampens economic activity, undermining, in turn, efforts to resolve problem loans. A multifaceted approach is needed, involving a combination of macro- economic policies to support growth and employment; strong supervisory frameworks to ensure macro-financial stability and create incentives for resolution; efforts to address informational gaps and deficiencies in insolvency and debt-enforcement frameworks; and development of markets for distressed loans. The institutional capacity constraints require coordination of reforms within the region and support from international organizations through capacity-building.

Suggested Citation

  • Ms. Kimberly Beaton & Mr. Thomas Dowling & Dmitriy Kovtun & Franz Loyola & Ms. Alla Myrvoda & Mr. Joel Chiedu Okwuokei & Ms. Inci Ötker & Mr. Jarkko Turunen, 2017. "Problem Loans in the Caribbean: Determinants, Impact and Strategies for Resolution," IMF Working Papers 2017/230, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/230
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