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
[CHART]
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