Bank Negara Malaysia (BNM), Perbadanan Insurans Deposit Malaysia (PIDM) and the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia recently on 27 October 2021 co-hosted the joint webinar in conjunction with the launch of the World Bank report entitled “Non-Performing Loans (NPLs) in East Asia and the Pacific: Practices and Lessons in Times of COVID-19”, to discuss the challenges that may be faced by policymakers as borrower relief mechanisms in response to the pandemic are withdrawn, considerations in managing effective exit strategies, and options available for resolving any anticipated increase in NPLs.
Katia D’Hulster, Lead Financial Sector Specialist, World Bank Group presented the key findings and recommendations from the World Bank report, which essentially follows the life-cycle of NPLs. The report covered areas such as the practices and quality of loan portfolios in the banking sector, the exceptional measures adopted in response to the Covid-19 and the main vulnerabilities surrounding credit markets that may negatively impact the credit quality of banking portfolios and amplify the effects of the Covid-19 crisis.
The following are some key lessons from the webinar:
- Policymakers should strive to achieve a balance between micro prudential objectives of safety and soundness and the macro prudential goal of system-wide resilience, while maintaining adherence to international standards and good practices.
- The widespread adoption of a harmonised definition of NPL across the East Asia and Pacific (EAP) region in line with international standards will enhance comparability of data and ensure effective monitoring for the formulation of evidence-based NPL resolution polices.
- Clear exit strategies are needed for the gradual withdrawal of the extraordinary support measures to ensure that such measures are more targeted, in contrast with a broader and larger-scale support at the beginning of the pandemic.
- It is important for EAP jurisdictions to strengthen their legal environment and insolvency frameworks such as collateral enforcement, to encourage the orderly exit of firms.
The event was attended by more than 300 participants from 49 countries, representing central banks, deposit insurers, financial institutions and the academia.