Sources: International Monetary Fund (IMF); World Economic Forum (WEF); United Nations (UN)
A close examination of these economies reveals many startling details, the first of which is that Italy and Greece—both of which are members of the O.E.C.D. and are considered developed economies—are ranked high on this list and both have excessively high NPL ratios. This is especially concerning not only for the European Union but also the world economy as it exemplifies the fragile financial system that is present in many countries—even developed economies—in the wake of the 2008-09 financial crisis and the subsequent recession and credit contraction period that followed. As legislators and policymakers around the world seek to build stronger economies and fully recover from the recession a decade ago, decreasing and maintaining a low level of non-performing loans and NPL ratio is of utmost importance. Particular economies, like that of Ukraine and Nigeria, experienced drastic fallout at the onset of the 2008-09 financial crisis, exemplified by the statistically significant uptick in their national NPL ratios (refer to Figure 2 and Figure 3). The Nigerian economy, however, quickly recovered from the financial crisis and its NPL ratio subsequently dropped back to normal. Although Nigeria is indeed seeing a new increase in its NPL ratio starting in 2015, the current NPL value of 9.300% (as of Dec. 2019) is not nearly as high as the 37.300% that was reached at the peak of the financial crisis in 2009. The Ukrainian economy, on the other hand, never fully recovered from the financial fallout in 2009, and their NPL ratio drastically increased since then. The current value of 48.400% is nearly four times as high as the 13.700% peak reached during the 2008-09 financial crisis. The stark contrast between the effect of the financial crisis and the subsequent NPL recovery provides valuable insight into the effectiveness of different types of approaches used by national governments to recover from financial crisis and, more importantly, decrease the national average NPL ratio so that banks are minimally impacted afterwards.
Figure 2: Chart of NPL ratio trends of five selected countries from 1998 to 2019
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Sources: Government-released treasury data; International Monetary Fund (IMF)
There are also economies of interest for researchers because the average of their NPL ratio has been steadily decreasing or has taken on a significant downwards trend. The reason for these trends may be natural—no governmental actions were taken—or the result of legislative action. The Pakistani economy is an excellent example. During 1998-2003, the average NPL ratio hovered around 20% with a high of 23.400% in 2001 and a low of 17.000% in 2003. Comparing this to the 2015-2019 data, there is a significant decrease and the NPL ratio now hovers at only about 10% (refer to Figure 3) with a high of 11.359% in 2015 and a low of 9.100% in 2019. The Russian economy experienced a similar trend when the average NPL ratio from the 1990s (about 15%) decreased significantly to about only 3% in the early to mid-2000s before going back up. Indeed, however, when data for 2020 is eventually released by nations, the impact of COVID-19 may have significant impacts on these numbers like the 2008-09 financial crisis did.
Figure 3: Numeric data of NPL ratios for five selected data from 1998 to 2019