A stock in excess of €900 billion of nonperforming loans continue to clutter the European banking system, impeding economic growth. This issue remains a key challenge for policy makers. As we show in our latest Global Financial Stability Report, part of the solution to address this legacy is an upgrade in legal systems. Current inefficiencies—long foreclosure times and insolvency procedures—are a reason for the gap between the value of loans on bank balance sheets and the price investors are willing to pay. A reliable legal environment and an efficient judicial system maximize the value of nonperforming loans (NPLs), reduce the value gap and give banks greater incentive to get NPLs off the books. Our analysis, using time to foreclose as a proxy for effective insolvency regimes, shows there is a large upside for new lending capacity in the euro area (Chart 1).
If financing is the lifeblood of European small businesses, then the effect of the financial crisis was similar to a cardiac arrest. The flow of affordable credit from banks was choked off and small and medium-sized enterprises (SMEs) were hit hardest. Today, with bank lending still recovering from that shock, smart policy actions could open up securitization as a source of financing to help small businesses start up, flourish and grow.
SMEs are vital to the European economy. They account for 99 out of every 100 businesses, two in every three employees, and 58 cents of each euro of value added of the business sector in Europe. Improving access to finance would therefore not only revive small businesses, but also support a strong and lasting recovery for Europe as a whole.
Filed under: Advanced Economies, Economic Crisis, Economic research, Europe, Finance, Globalization, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: bank lending, bond markets, capital markets, credit, EU, Europe, France, Germany, infrastructure, Italy, private investment, Securitization, small and medium-sized enterprises, Spain | Leave a comment »
By Min Zhu
For the past decade, house prices have steadily increased in the vast majority of the 30 countries that make up the IMF’s House Price Index for Emerging Markets released today at a conference organized by the IMF and the Indian Institute of Management in Bangalore, India (Figure 1).
The index shows a lull in the aftermath of the global financial crisis, followed by an increase for nine consecutive quarters since 2012. This run-up—four times as fast as that in advanced economies—would be even more pronounced if the larger countries in the group such as China and India receive greater weight in the index.
Filed under: Advanced Economies, Asia, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund, Investment | Tagged: China, credit, emerging market, Global House Price Index, house prices, housing market, India, macroprudential policies, Microprudential regulations, Min Zhu, monetary policy, public-private partnerships | Leave a comment »
(Versions in Español)
Much has been said lately about growing private sector debt in emerging market economies. In our recent analysis, we examined the corporate sector in a number of countries and found their rising levels of debt could make them vulnerable.
Low global interest rates in the aftermath of the global financial crisis and ample amounts of money pouring in from foreign investors have enabled nonfinancial corporations to raise record levels of debt.
Credit was readily available in the aftermath of the crisis, and economic expansion enabled earnings to grow healthily, thus helping to prevent leverage from rising too far and too fast. Recently though, slowing growth prospects are beginning to put pressure on firms’ profitability. Moreover, higher debt loads have led to growing interest expense, despite low interest rates. As a result, the ability of firms to service their debt has weakened (Figure 1).
Filed under: Debt Relief, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund | Tagged: banking sector, credit, emerging market, exchange rate, interest rates, macroprudential policies, private sector | Leave a comment »
By Anoop Singh
Hard landing, soft landing, no landing, overheating. Pundits’ views on China’s economy bounce around—often rapidly—between these descriptions.
Just two short months ago, the dominant concern was about a sharp slowdown, below this year’s official growth target of 7½ percent. Now, these fears have retreated, pushed aside by talk of renewed momentum.
Our sense, here at the International Monetary Fund, has always been that economic growth will slightly surpass this year’s official target. But we have also cautioned that China’s economic challenges are growing, and that accelerating reform is critical for containing risks and achieving a smooth transition to sustainable growth.
The upcoming Third Plenum provides an opportunity for the new leadership to provide guidance on how they plan to meet these challenges.
Filed under: Asia, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Finance, growth, IMF, International Monetary Fund | Tagged: China, credit, financial reform, government finances, Labor, Regional Economic Outlook: Asia | Leave a comment »
By Erik Oppers
What’s up with weak credit? Five years into the economic crisis credit is still barely growing, and even declining in many advanced economies. Weak credit growth is a major factor holding back the economic recovery and governments have tried every policy they can come up with to jumpstart credit. Still, banks don’t seem to want to lend. Or is it the corporate sector and households that can’t afford to borrow? Many feel these policies are not working. What are policymakers to do?
Our analysis in the most recent Global Financial Stability Report tries to shed light on all this darkness to help countries figure out how to make these policies work. It turns out there is no cookie-cutter solution: the problem differs from country to country and changes over time. For example, in a number of euro area countries, a lackluster demand for loans limited credit growth early in the crisis, but then banks became reluctant to supply more loans as the crisis in Europe intensified in 2012.
Filed under: Advanced Economies, Economic Crisis, Economic research, Emerging Markets, Finance, Fiscal policy, growth, International Monetary Fund, Politics | Tagged: balance sheets, banks, credit, euro area, financial stability, GFSR, Global Financial Stability Report, lending | Leave a comment »