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Bank Asset Quality in Emerging Markets

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Author Info

  • Reinout De Bock
  • Alexander Demyanets

Abstract

This paper assesses the vulnerability of emerging markets and their banks to aggregate shocks. We find significant links between banks'' asset quality, credit and macroeconomic aggregates. Lower economic growth, an exchange rate depreciation, weaker terms of trade and a fall in debt-creating capital inflows reduce credit growth while loan quality deteriorates. Particularly noteworthy is the sharp deterioration of balance sheets following a reversal of portfolio inflows. We also find evidence of feedback effects from the financial sector on the wider economy. GDP growth falls after shocks that drive non-performing loans higher or generate a contraction in credit. This analysis was used in chapter 1 of the Global Financial Stability Report (September 2011) to help evaluate the sensitivity of banks'' capital adequacy ratios to macroeconomic and funding cost shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/71.

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Length: 27
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/71

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Related research

Keywords: Emerging markets; Banks; Capital flows; Terms of trade; Financial stability; Time series; External shocks; Spillovers;

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References

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Citations

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Cited by:
  1. Andrés González & Sergio Ocampo & Julián Pérez & Diego Rodríguez, 2012. "Output gap and Neutral interest measures for Colombia," BORRADORES DE ECONOMIA 009870, BANCO DE LA REPÚBLICA.
  2. Nir Klein, 2013. "Non-Performing Loans in CESEE," IMF Working Papers, International Monetary Fund 13/72, International Monetary Fund.
  3. Alberto Ortiz Bolaños & Last: Ortiz Bolaños, 2012. "Credit Market Shocks, Monetary Policy, and Economic Fluctuations," Documentos de Investigación - Research Papers, Centro de Estudios Monetarios Latinoamericanos, CEMLA 6, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  4. Horvath, B.L., 2013. "The impact of Taxation on Bank Leverage and Asset Risk," Discussion Paper, Tilburg University, Center for Economic Research 2013-076, Tilburg University, Center for Economic Research.
  5. Karminsky, A. & Kostrov, A., 2013. "Modeling the Default Probabilities of Russian Banks: Extended Abillities," Journal of the New Economic Association, New Economic Association, New Economic Association, vol. 17(1), pages 64-86.
  6. Maria Th. Kasselaki & Athanasios O. Tagkalakis, 2013. "Financial soundness indicators and financial crisis episodes," Working Papers, Bank of Greece 158, Bank of Greece.
  7. Alwyn Jordan & Carisma Tucker, 2013. "Assessing the Impact of Nonperforming Loans on Economic Growth in The Bahamas," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 371-400, July-Dece.
  8. Josué Fernando Cortés Espada, 2013. "Estimating the Exchange Rate Pass-Through to Prices in Mexico," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 287-316, July-Dece.
  9. Ricardo Cervantes & Phakawa Jeasakul & Joseph Maloney & Li Lian Ong, 2014. "Ms. Muffet, the Spider(gram) and the Web of Macro-Financial Linkages," IMF Working Papers, International Monetary Fund 14/99, International Monetary Fund.
  10. Petr Jakubík & Thomas Reininger, 2013. "Determinants of Nonperforming Loans in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 48-66.
  11. Eftychia Nikolaidou & Sofoklis Vogiazas, 2014. "Credit Risk Determinants for the Bulgarian Banking System," International Advances in Economic Research, Springer, Springer, vol. 20(1), pages 87-102, February.
  12. Vasiliki Makri & Athanasios Tsagkanos & Athanasios Bellas, 2014. "Determinants of Non-Performing Loans: The Case of Eurozone," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 193-206, March.

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