POLICY RESEARCH WORKING PAPER 1620 Bank Insolvencies A useful new episodes of 'th anw "A', since the iarti Cross-country Experience Gerard Caprio, Jr. Daniela Klingebiel The World Bank Policy Research Department Finance and Private Sector Development Division U July 1996 POLICY RESEARCH WORKING PAPER 1620 Summary findings Few areas of the world have escaped significant losses In a companion paper (Caprio and Klingebiel, "Bank from episodes of bank insolvency. Bank insolvency is Insolvency: Bad Luck, Bad Policy, or Bad Banking?" in more costly in the developing world, where losses Michael Bruno and Boris Pleskovic, eds., Annual World represent a greater share of income than in industrial Bank Conference on Development Economics 1996, economies and where it is therefore doubly important to Washington, DC: World Bank, forthcoming) the authors prevent these episodes. discuss possible preventatives and the tradeoffs between Caprio and Klingebiel present data on episodes of safety and soundness, on the one hand, and efficiency, bank insolvency since the late 1970s. This new database on the other. (How high should capital reserves be, for can be used in conjunction with readily available data example?) Meanwhile, this initial database suggests (for example, on GDP, inflation, fiscal balances, further avenues for research. monetary growth, and trade balances). Information and There is a dearth of widely available indicators on insights are presented in seven tables on: bank performance. This might have been understandable * Episodes of major bank insolvencies and systemic in the early 1980s but not today, considering the number banking crises (country, scope of crisis, and estimate of of episodes of bank insolvency. The damage done to losses). Mexico's economy during the 1994-95 crisis and the * Main characteristics of banking crises (magnitude, estimates of enormous losses from some Brazilian banks cost of resolution, mechanism of resolution, growth in dramatize the significance of the problem. More new loans, and GDP). attention should be focused on developing indicators that * Terms of trade in crisis countries. might predict bank insolvency for individual banks and * Characteristics of restructuring. systems as a whole. * Financial analysis of crisis countries (financial Caprio and Klingebiel devise criteria for assessing how deepening, real credit/GDP, real deposit interest rates, governments deal with insolvency and find that countries and recurrent problems). handle it well. The companion paper makes * Outcome of restructuring in crisis countries. recommendations for addressing this failure. This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to study the causes and consequences of bank insolvency. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Bill Moore, room N9-038, telephone 202-473-8526, fax 202-522-1155, Internet address bmoore@worldbank.org. July 1996. (52 pages) The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the na,es of the authors and should be used and cited accordingly. The findings, interpretations, and conclusions are the authors' own and should not be attributed to the World Bank, its Executive Board of Directors, or any of its member countries. Produced by the Policy Research Dissemination Center Bank Insolvencies: Cross Country Experience by Gerard Caprio, Jr. Daniela Klingebiel Finance and Private Sector Development Division Policy Research Department The World Bank The authors are, respectively, Lead Economist, Policy Research Department, and Consultant, Western African Department. This paper, and its companion paper, benefitted from comments by Phil Brock, Charles Calomiris, Elena Folkerts-Landau, Philip Keefer, Homi Kharas, Ross Levine, Millard Long, Herminia Martinez, Patrick Honohan, Boris Pleskovic, Andrew Sheng, Mary Shirley, and Shahid Yusuf. Alexander Tanzi supplied competant research assistance, and colleagues in various regions of the World Bank provided helpful information on individual country cases. Given the difficulty in securing accurate and standardized information on the banking systems, data contained herein should be used with caution. Episodes of bank insolvency have increased in recent years and few areas of the world have escaped without significant losses. Although the losses per se may be belittled as being "just a transfer," they signal a misallocation of resources, since if banks had selected profitable projects, more than likely loans would have been repaid. Moreover, the transfer payments entailed as a result of banking losses often are huge, in many cases 10-20% of GDP and occasionally as much as 40-55% of GDP, if the higher estimates of losses in Chile and Argentina are correct. Large scale transfers of this magnitude cannot be easily handled by most governments and can be expected to derail stabilization programs, as authorities will prefer to rely on less conspicuous taxes, including inflation. This paper reproduces the data gathered in the last year on episodes of bank insolvency that have occurred since the late- I 970s for the benefit of researchers and others interested in this area. It is the first such effort and necessarily contains a number of flaws. First and foremost, it relies upon the assessment of a variety of finance professionals in pulling together characterizations of factors that have caused crises, as we will henceforth dub insolvency episodes, and for information on their resolution. Only published sources or interviews with experts familiar with individual episodes were employed. In the future, as greater attention is focused on banking problems, there is the hope that more systematic and quantitative sources will be available. Second, for many countries there are no published, comparable data for banks which would permit outsiders to know with great precision the solvency of the institution. Marking bank portfolios to market is treacherous in industrial countries, where many loans are not traded, and it is doubly so in developing and transitional economies. Third, it is difficult to time these 2 episodes of bank insolvency. Overt crises, such as those involving a run on banks and/or on a country's currency, are relatively easy to date, but these are only a subset of the episodes reviewed here. Financial distress, in which the banking system has negative net worth, can occur over a period of time and indeed even persist before being detected. The dates attached to the crises reviewed here are those generally accepted by finance experts familiar with the countries, but their accuracy is difficult to determine in the absence of the means to mark portfolios to market values. Similarly, it is not always clear when a crisis is over, and in the case of countries in which there are multiple episodes, it may well be that later events are merely a continuation of those occurring earlier. Lastly, it should be noted that there are no policy conclusions presented here, as they are contained in a companion paper (Caprio and Klingebiel, 1996). The Data Table 1 presents the entire sample of 69 countries for which information was available, with those countries in which the episode appeared to be systemic, in the sense of much or all of bank capital being exhausted in the first part of the table, and the smaller or more borderline episodes in the second part.' As noted in Caprio and Klingebiel (1996), some judgment has gone into the compilation of this list, not only for the countries in which data are absent on the size of the losses but also in that in many cases the official estimates understate the size of the problem. There likely were countries not shown which had smaller crises since the late 1 970s, but about which relatively little was written, and hence they have been omitted from the table. Moreover, virtually every 3 transitional economy (TE) at some stage in the transition process belongs on the (systemic) list; however, in the interest of limiting the number of countries with missing information these were excluded. Including all the TEs would bring the number of countries covered to about 90 and the episodes to well over 100. Table 2 turns to a subset of 26 countries (29 cases) for which more detailed information was available and reviews the factors cited as important causes of the crisis, its size and the resolution cost, a brief note on the approach taken in this resolution process, and the real credit and real GDP growth leading up to the episode. A closer look at this subset of banking system insolvencies further shows that a variety of factors (column 1) can be cited as causes of the banking crisis. Macro factors were at least a 2 contributing factor in all of the banking crises in our subset. But a weak incentive system for banks also figured prominently (Caprio and Klingebiel). Whereas the former tended to be more proximate and obvious once the banking crisis was brought to public attention (either by bank runs or by the government issuing a guarantee on deposits), weaknesses in the latter tended to exacerbate the magnitude of the crisis. With respect to the accounting framework, in many countries it was mostly left to the banks' discretion when to list a loan as non-performing and whether to show accrued interest as paid -- in other words, existing regulations were lax. If they existed at all, prescribed capital to asset ratios were generally set at low levels, single borrower and other exposure limits were mostly non-existent or very lenient. Poor lending decisions, lack of managerial skills, and fraud were in some of the cases (e. g. in Benin, Ghana, Guinea, Thailand, Colombia) additional contributing factors to the crisis, as well as lending to related 4 parties and politically motivated loans (Benin, Chile, Philippines, Ghana, Indonesia, Turkey, Brazil). Better supervision might have revealed and halted these problems earlier, if political forces were conducive to allowing supervisors to take prompt corrective action. The magnitude of the crisis episodes of our subset ranged from affecting banks controlling around 70-90% of banking system assets (Benin 1988-90, Guinea 1985, Ivory Coast 1988-9 1, Poland 1991) to banks accounting for around 40-60% of banking system assets (Philippines, Argentina 89/90, Chile, Estonia). A relatively smaller but still very large share of the banking sector was affected in Uruguay (30% of financial system deposits), Senegal (20-30% of financial system assets), Colombia (25% of banking system assets) and Spain (20% of total deposits). The Malaysian banking crisis appears relatively minor compared to these episodes; institutions which accounted for only 3.3% of financial system deposits were found to be insolvent with another 4.4% of marginally solvent institutions. Table 3 shows the change in the terms of trade in the years leading up to the crisis. Volatile terms of trade are particularly troublesome for economies that are highly concentrated, and Table 4 reveals that many developing countries tend to be much more concentrated, as proxied by the importance of top 3-4 items in exports. Export concentration typically was substantially greater in the countries experiencing systemic problems from those with only borderline episodes. With concentrated economies, domestic banks often cannot protect themselves from volatility if they are constrained to domestic investments which, as a result of capital controls, often is the case. 5 Turning to the resolution of bank insolvency, Table 5 attempts to characterize the steps taken, including changes in macro policies and a variety of variables meant to capture changes in different aspects of the incentive system confronting bankers. Note here that we sought to identify instances where countries adopted a resolution mechanism that included among other measures a recapitalization of the banking system, in order to illustrate the importance of addressing incentives and getting the message across that poor performance is costly. Also, in arriving at our sample we were influenced by the availability of information. The resolution of bank insolvency proved to be very expensive in our subset, placing a heaven burden on the country and on the government's budget, though a caveat is important here as we have not been able to include that part of the burden born by depositors and borrowers in the form of widened spreads for bad loans that were left on banks' balance sheets.3 Among the episodes with available data, Argentina's banking crisis in the early 1 980s proved to be the most expensive restructuring exercise, amounting to 55.3% of GDP, followed by the Chile with a price tag of over 40% of GDP, COte d'Ivoire 25% and Benin and Senegal costing 17% of GDP. Up to March 1995, Venezuela has spent 13% of GDP on the resolution of its banking crisis, and more recent numbers in the press put the cost at 18% of GDP or higher. Less expensive but still a heavy burden on the country placed the ongoing restructuring in Hungary, amounting to about 10% of GDP and the restructuring in Uruguay and Ghana, costing 7% and 6% of GDP, respectively. All of these cases, were characterized by large interest rate spreads, as often is the case when insolvency is a problem (Brock, 1995). And although the 6 banking crisis reportedly only affected a small fraction of the banking system in Malaysia, estimated losses of all financial institutions added up to 4.7% of GNP. All of these numbers deserve some suspicion, as governments can bail out banks in a variety of ways, such as by giving a subsidy to a borrower, granting the borrower some monopoly privilege or other means to improve its profits and thereby repay loans, or by directly injecting funds to banks. Not surprisingly, the cost of indirect methods can be difficult to estimate. Although some of the episodes of banking system insolvencies are still being resolved, a few preliminary observations can be made. Governments were successful in dealing with macro imbalances -- that is to lower their budget deficit, to bring down inflation and/or to devalue its currency to address external imbalances -- in only six cases (Chile, Estonia, Finland, Malaysia, Spain and Thailand); a relatively stable policy regime was already in place in the United States; in Benin, C6te dlvoire and Senegal, inflation declined but it was not until several years later that currency overvaluation was corrected. In 16 other cases, macro imbalances either were addressed inadequately or only partly resolved, resulting in a continuation of the volatile macro environment. The strengthening of the regulatory and accounting framework and the enforcement thereof constitute the other important components of the external incentive system within which banks operate. Some changes were introduced in all of the cases of our subset. However, only in sixteen cases can these changes be considered to be substantial encompassing the introduction or strengthening of capital/asset ratios, single borrower as well as other risk exposure limits, the prohibition of connected lending and 7 limits to lending to bank officers and board members as well as the implementation of standardized rules for asset valuation and loan provisioning.4 Argentina and Brazil implemented a satisfactory accounting and regulatory framework for their private banks but only recently started to extend these frameworks to the public banking system. For the rest of the cases the changes made cannot be considered to be satisfactory. Only eight of the 16 cases (Benin, Chile, C6te d'Ivoire, Finland, Malaysia, Colombia, Spain and the United States) in which the regulatory and accounting framework was substantially strengthened also saw significant improvements in the enforcement of improved regulations. Regarding the internal incentive framework, shown in the last four columns of Table 5, we also observe notable differences in whether governments implemented performance monitoring programs for banks, put measures into place that halted lending to borrowers in default, made attempts to collect on written off loans, and changed senior bank management. All of these measures are important, in that they reduce the scope for "evergreening" loans (make bad loans look good by lending more funds) and send a clear signal that debts need to be repaid and that losses will be penalized. In ten cases, annual performance monitoring programs by reputable outside auditors were put into place, while in two cases (Uruguay, Poland), this measure was only adopted for a subset of the banks in the system. In at least four cases of our subset (Cote d'Ivoire, Guinea, Nigeria, and Senegal), no such program was implemented. Banks stopped lending to borrowers in default in nine of the cases for which information was available; in at least four cases lending to borrowers in default was nQ= halted. Poor legal frameworks often 8 proved to be an important hindrance in attempts of banks or institutions that took over bad loans to collect on written off loans. Government failure to improve the legislative framework for banks to enforce their loan contracts also proved to become a hindrance for extension of new loans in the aftermath of the crisis (e.g., banks in C6te d'Ivoire cite an inefficient legal framework as a major reason for their unwillingness to lend). It also drives up the risk premiums banks charge, thus leading to higher overall lending rates that adversely affects the private sector. In fifteen instances the affected banks or agencies appeared to make serious attempts to collect on written off loans. Finally, in the majority of cases (12) for which such information was available did the government change the senior bank management of the restructured banks. In addition, in Poland twinning arrangements with foreign banks were set up and bank managers of state-owned banks received part of their compensation in the form of stock options, which have become valuable in light of the credible privatization process there. This improved incentive system and clear progress towards private ownership likely influenced incentives for prudent risk taking. On the contrary, in Hungary senior bank management was not let go, muting any signal regarding performance. Several Ghanaian bank managers merely appear to have rotated assignments, muting any signal regarding performance. Turning to an evaluation of the restructuring attempts, Table 6 shows how countries scored on the criteria developed elsewhere (Caprio and Klingebiel) for assessing the success of responses to insolvency. Briefly, countries received a mark if financial depth rose after the crisis to levels above that seen in the pre-crisis period; if real interest rates on deposits were neither excessively negative (below -5%) nor excessively 9 positive (+10%); if real credit growth to the nongovernment sector was positive but not well above (2.5 times) real GDP growth; and if there was no recurrence of a significant episode of bank insolvency. As seen in the Table, only Chile and Malaysia received the highest rating (4) among those in the developing world. Table 7 presents the detailed data on the measures. Conclusions This brief paper has laid out a new information base on bank insolvency and can be complemented by more readily available macro data, such as GDP, inflation, fiscal balances, monetary growth, trade balances, etc.5 Three issues stand out with great clarity. First, there is a dearth of widely available indicators on bank performance. Although this absence was understandable at the start of the 1 980s, it is hardly so today, given the number of episodes and the absent of any convincing signs that they are receding in significance. Indeed, the aamage done to Mexico's economy during the 1994-95 crisis and the enormous cost estimates for losses in some Brazilian banks underline the significance of the problem. Greater attention should focus on correcting this lacuna, including the development of indicators that might predict the occurrence of these problems, both at the individual bank level but especially for the banking system as a whole. Second, relatively few countries scored well on handling bank insolvency. To be sure, for several countries insufficient time has passed, and the criteria are not above reproach -- though the authors' priors were that they were excessively lenient. If few governments handle crises well, then this suggests that an analysis of the political 10 economy of bank insolvency would potentially pay a high return. Third, and related to the prevalence of bank insolvency, is the fact that they are more costly in the developing world -- losses have tended to be larger relative to income than in industrial economies. Large losses would increase the importance of preventing these episodes. The companion paper to the present one summarizes different possible preventatives, all of which involve increasing the stake of bank owners and managers in ensuring the safety and soundness of their institutions. These solutions all may entail less competition in banking, and a variety of issues then arise for research. For example, more analysis of how high capital levels should be to prevent bank insolvency in the developing world would make an important contribution to welfare, as would some consideration of the tradeoffs between safety and soundness, on the one hand, and efficiency on the other. Lastly, the experiments of country's such as New Zealand, with more market-based monitoring, and of the United States, with its attempts to tie the hands of supervisors, cry out for future research. 11 References Blass, Asher A. and Richard S. Grossman, 1995. "A Costly Guarantee? The 1983 Israel Bank Shares Crisis Revisited," The Maurice Falk Institute for Economic Research in Israel, Discussion Paper No. 95.05, August. Borish, Michael S., Millard F. Long, and Michel Noel, "Enterprise and Bank Restructuring: Recent Losses from Transition Countries," World Bank Discussion Papers, 279, January. Caprio, Gerard, and Daniela Klingebiel, 1996. "Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking," paper presented at the Annual Bank Conference on Development Economics, April 25-26, 1996, The World Bank. Fleming, Alex, and Samuel Talley, 1996. "The Latvian Banking Crisis: Lessons Learned," mimeo, The World Bank. Marshall, Jorge, Klaus Schmidt-Hebbel, 1994. "Chile: Fiscal Adjustment and Successful Performance," in William Easterly, C.A. Rodriguez, and Klaus Schmidt-Hebbel, Public Sector Deficits and Macroeconomic Performance, Oxford University Press. Morris, Felipe, Mark Dorfinan, Jose Pedro Ortiz and Maria Claudio Franco, 1990. "Latin America's Banking System in the 1980s," World Bank Discussion Papers, 81. Rodriguez, Carlos Alfredo, 1994. "Argentina: Fiscal Disequilibria Leading to Hyperinflation, in Easterly, Rodriguez, and Schmidt-Hebbel, Public Sector Deficits and Macroeconomic Performance, Oxford University Press. Sheng, Andrew, 1995. Bank Restructuring: Lessons from the 1980s, The World Bank. Sundararajan, V., and Tomas Jose T. Balino, eds. 1991. Banking Crises: Structural Weaknesses, Support Operations, and Economic Consequences, International Monetary Fund. Weisbrod, Steven R., Howard Lee, and Liliana Rojas-Suarez. 1993. Bank risk and the declining franchise value of the banking systems in the United States and Japan," IMF Working Paper WP/92/45. The World Bank, 1989. World Development Report. 12 Notes I In cases in which net capital was positive according to official data but likely negative based on statements of experts, we sided with the latter. Decisions on when one crisis ends and another begins are necessarily arbitrary, hence it is possible to differ on whether some cases represent multiple crises or a continuation of the preceding one. Although it would be possible to apply the indicators of success (noted in the next section) and use them to note the end of a crisis, that would mean that many cases would involve ongoing crisis. 2 Except for three cases (Poland 1 990s, Brazil 1994, and Turkey 1994) in our subset, all countries experienced a terms of trade (ToT) decline of at least 10% prior to the crisis. Ghana (-60%), Ivory Coast (- 47%) and Nigeria (-50%) experienced a very sharp fall in the ToT in the period before banking problems came to the forefront. Moreover, the period prior the crisis was characterized by fast and sometimes explosive loan growth. In 9 cases real loans grew significantly (2.5 times or more) faster than real GDP. 3 Loss allocation is an important part of the restructuring mechanism which also determines the future monitoring of banks by their depositors. Potential bearers of losses include shareholders, healthy banks, depositors and borrowers of the insolvent institutions, and the govemment. Losses to depositors can be allocated through a write-down of their uninsured deposits, through the conversion of their deposits into bank equity, or both. They also incur losses if the government imposes interest rates that are below their "market rates". If uninsured depositors are completely bailed out, that raises their expectations of a future bailout and lowers their incentive to monitor bank behavior in the future. Losses can be distributed to the govemment through central bank assistance, guarantee of bank deposits, tax write off of bad loans, or direct intervention. Losses are then passed on to the tax payer or, if they lead to budget deficits which are financed through monetary expansion, to the currency holding public. 4 Admittedly, this is a judgment, based on conversations with bank supervisors and financial economists, as well as various country reports. It also needs to be noted, that even within this subgroup substantial differences in the prudential regulatory framework still exists including different capital to asset ratio (currently 4% in Benin and C6te d'lvoire but 8% in Colombia) and different single borrower limits (100% in Benin and C6te d'lvoire and 30% in Malaysia). 5 This information is readily available through the IMF's International Financial Statistics. Annex Table 1 13 Episodes of Major Bank Insolvencies I. Episodes of Systemic Banking Crises , ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~ ~. .. . - . - . - . -.. - - .. . -. . .. -. . - .- ~~~..:.-. - . .^ .:.:;-..-. .::. -.::. -..-.-. :......::-_ ......†...-...... ... . - - Benin 80% of banks loan portfolio was non-performing. CFA95bn (17% of GDP). 1988- 1990 Burkina Faso late 1980s Cameroon 1987- Congo 1980s & 1991 Central African Rep 1980s& 1994. Chad 1980s& 1990s C6te d'lvoire 4 big banks affected accounted for 90% of Government costs estimated at CFA677 1988-1991 banking system loans; 3 definitely and one bn (25% of GDP). perhaps insolvent. Eritrea Most of the banking system is insolvent. 1993 Ghana 7 audited banks (out of 11) insolvent; rural Restructuring costs estimated at 6% of 1982-1989 banking sector affected. GNP. Guinea 6 banks accounting for 99% of total system Repayment of deposits amounted to 3% 1985 deposits. of 1986 GDP. 1993-94 2 banks insolvent accounting for 22.4 % of financial system assets; one other bank in serious trouble; 3 banks together account for 45% of the market. Kenya 4 banks and 24 non-bank financial institutions 1985-89 faced liquidity and solvency problems together accounting for 15% of total liabilities of financial system. 1992 Intervention into two local banks. 1993-95 Serious systemic problems with banks accounting for more than 30% of assets of the financial system facing solvency problems. Annex Table 1 14 Episodes of Major Bank Insolvencies 1. Episodes of Systemic Banking Crises .,,..~~~~~~~~~~~~~~~~~~~~~~. ~~~~~~~~~~~ ..~~........... . Madagascar 25% of loans deemed irrecoverable. 1988 Mauritania 1984: 5c major banks had non-performing assets Cost of rehabilitation estimated at 15% 1984 - 1993 ranging from 45%-70% of their portfolio. of GDP in 1988. Mozambique BCM, main commercial bank, experiences 1987 - present solvency problems which become apparent after 1992 Nigeria 1993. insolvent banks account for 20% of total 1990s assets and 22% of banking system deposits; 1995: almost half of the banks are reported to be in financial distress. Senegal 6 commercial banks and I development bank US$830 million which is equivalent to 1988 to 1991 closed accounting for roughly 20 - 30%/o of 17% of GDP. financial system assets. South Africa Trust Bank 1977 Tanzania 1987: the main financial institutions had arrears 1987: implied losses amount to nearly 1987; 1995 amounting to half of their portfolio; 10% of GNP. 1995: NBC, which accounts for 95% of the assets of the banking system has been insolvent for the last 3 to 5 years possibly longer. Togo 1993, 1994, 1995 Uganda 50% of banking system is facing solvency 1994 problems. Zaire 1991-92 Zambia Meridian Bank became insolvent which accounted Rough estimate of US$50 million (1.4% 1995 for 13% of commercial bank assets. of GDP). Bangladesh In 1987, 4 banks account. for 70% of total credit late 1980s-present had estimated 20% of NPLs; late 1980s up to now, entire private/public banking system is technically insolvent. Annex Table 1 15 Episodes of Major Bank Insolvencies I. Episodes of Systemic Banking Crises ., Xw t w India 1994/95 Nepal In early 1988 the reported arrears of 3 banks (95% 1988 of financial system) averaged 29% of all assets. Philippines 2 public banks accounting for 50% of banking At its peak, central bank assistance to 1981-1987 system assets, 6 private banks accounting for 12% financial institutions amounted to 19.1 bn of banking system assets, 32 thrifts accounting for pesos (3% of GDP). 53.2% of thrift banking assets and 128 rural banks. Sri Lanka State-owned banks comprising 70% of banking Restructuring cost amounted to 25 bn 1989-93 system have estimated non-performing loans of rupees (5% of GDP). about 35% of total loan portfolio. Thailand Authorities intervened in 50 finance and security Government cost for 50 finance companies 1983-87 firms & 5 commercial banks or about 25% of total estimated at 0.5% of GNP; government financial system assets; 3 commercial banks cost for subsidized loans amounted to judged insolvent (14.1% of commercial banking about 0.2% of GDP annually. assets). .. .. .. X , j. -- . , ,, ., - Costa Rica 1987: public banks accounting for 90% of total Implied losses of at least twice the capital Several instances credit considered 32% of loans uncollectible. plus reserves. Mexico 1981/82 (perhaps until reprivatized 1990/91) Mexico Commercial banks past due to gross loan ratio Accumulated losses are estimated at 12- 1995 reaches 9.3% in February 1995. 15% of GDP. t At*.:j' Argentina 1980-82: more than 70 institutions were liquidated 55.3% of GDP. 1980-82 or subject to central bank intervention accounting for 16% of assets of commercial banks and 35% of total assets of finance companies. Argentina 1989/90 All banks or 50% of deposits. 1995 Suspension of eight banks and collapse of three banks. Bolivia 5 banks were liquidated; total NPLs of banking 1986-87 system reached 29.8% in 1987; in mid-1988 reported arrears stood at 92% of commercial banks' net worth. Annex Table 1 16 Episodes of Major Bank Insolvencies I. Episodes of Systemic Banking Crises Brazil (deposit to bond conversion) (1 990) 1994/95 2 large state banks insolvent, as well as the seventh Estimate: negative net worth of selected largest private bank; licenses of 11 small banks state and federal banks estimated at 5-10% revoked. of GDP; recent estimates put Banespa's losses alone at US$ 15-20 bn., the largest failure as of early 1996. Chile entire mortgage system insolvent. 1976 1981-83 1983: 7 banks and I financiera accounting for 1982 - 1985: government spent 41.2% of 45% of total assets. GDP. Colombia Central Bank intervened in 6 banks accounting for rough estimate: 5% of GDP. 1982-87 25% of banking system assets. Ecuador Implementation of exchange program (domestic early 1980s for foreign debt) to bail out banking system Paraguay Government superintendency intervened in two 1995 inter connected commercial banks, 2 other banks and 6 related finance houses, accounting for ]0% of financial system deposits. Uruguay affected institutions accounted for 30% of Estimated costs of recapitalizing banks 1981-84 financial system assets; insolvent banks accounted estimated at US$350 million (7% of GNP); for 20% of financial system deposits. Central Bank's quasi-fiscal losses associated with subsidized credit operations and purchase of loan portfolios amounted to 24.2% of GDP during 1982- 85. Venezuela Banco Nacional de Descuento; Banco de 1980? Commercio; Banco de los Trabajuderos; 1994/95 insolvent banks accounted for 30% of financial Estimated losses put at over 18% of GDP. system deposits. Egypt Government closed several large investment early 1980s companies. 1990-9 1 Annex Table 1 17 Episodes of Major Bank Insolvencies I. Episodes of Systemic Banking Crises u _=_0 W ¢ W,c1~~~~~~~~~~~~~tuesCst Israel Virtually the entire banking sector affected, About 30% of GDP in 1983. 1977-83 representing 60% of stock market capitalization. Stock exchange closed for 18 days; bank share prices fell over 40%. Kuwait An estimated 40% of loans were non-performing 1980s by 1986. Morocco early 1980s Turkey Five banks were rescued; since 1985, 2 large 1982-85: rescue cost equivalent to 2.5% of 1982-85 banks were restructured. GNP. .. i I *, ¢ I , i, , ,,. .....,.,..:...... ..- Bulgaria 1995: an estimated 75% of all loans in banking the banking sector's losses may have 1990s system were substandard; banking systems run in amounted to as much as 14% of GDP. early 1996. Estonia insolvent banks: 41% of financial system assets. recapitalization outlays for new entity 300 1992 million EEK (1.4% of GDP). 1994 Social Bank which controlled 10% of financial system assets. Hungary 2nd half of 1993: 8 banks (25% of financial Overall resolution cost is estimated to 1991-95 system assets) insolvent. amount to 10% of GDP. Latvia largest bank and nine other banks together 1995 accounting for 40% of total banking system assets. Lithuania In December 1995, Central Bank suspended of 1995 - 1996 countries largest private bank and one mid-size private bank; these actions followed interventions in two smaller banks earlier in the year. Poland 7 of 9 treasury owned banks with 90% share of 1993: recap. costs of US$ 750 million for 1990s total credit market in 1991; Bank for Food seven commercial banks; recap. costs for Economy and cooperative banking sector. Bank for Food Economy and cooperative banking sector amounted to US$900 million. Romania Many loans to SOEs doubtful. Agricultural bank recapitalized with wide 1990-93 interest margins. Russia On August 24, 1995, interbank loan market 1995 stopped working; concern about connected lending in many new banks. Annex Table 1 18 Episodes of Major Bank Insolvencies 1. Episodes of Systemic Banking Crises Slovenia Recap. costs of US$1.3 bn. 1990s Industrialized Cnuutries . . . .. .... . ~~~~~~~~~~~~~~~~~~~~~~~~.. . . .. ..... .--i.---.......................... . . .. A , 0 0 4 : . . .7. .. ...... .......... ...... .......................... .. .. .. ...... . ........ .......... ... Finland Savings banking sector badly affected; Recap. costs amounted to 8% of GDP. 1991-1993 Government took over control of Skopbank in August 1991; several banks also suffered losses due to bad loans and share investments. Japan Banks are suffering from sharp decline in stock Rescue costs probably higher than 1990s market and real estate prices; official estimate of US$100 bn. NPLs: 40 trillion Yen (US$469 bn) in 1995 (10% of GDP); unofficial estimates reach I trillion or 25% of GDP; for some of bad loans banks have already made provisions. Norway Central Bank provided special loans to six banks, Recap. costs amounted to 4% of GDP. 1987-89 suffering from post-oil recession of 1985-86 and from problem real estate loans; state took control of 3 largest banks, partly through a Government Bank Investment Fund (Nkr 5 bn) and the state- backed Bank Insurance Fund had to increase capital to Nkr 11 bn. Spain 1978-83: 51 institutions holding 1/5 of all deposits Estimated losses of banks were 1977-85 were rescued; equivalent to approximately 16.8% of 1983: govemment nationalized 20 small/medium GNP. sized banks. Sweden 1991: government injected Skr 5 bn (US$800 Cost of recap. amounted to 6.4 % of 1991 million) into state controlled Nordbanken, and GDP. guaranteed US$609 million loan to save largest savings banks. Annex Table 1 19 Episodes of Major Bank Insolvencies I. Episodes of Systemic Banking Crises Hong Kong 9 Deposit Taking Companies failed. 1982-83 1983-86 7 banks or Deposit Taking Institutions were either liquidated or taken over. Indonesia Classified assets equal to over 14% of banking Recapitalization cost for five state 1994 system assets with over 70% in the state banks. banks expected to amount to 1.8% of GDP. Malaysia Insolvent institutions account for 3.4% of financial Reported losses equivalent to 4.7% 1985-88 system deposits; marginally capitalized and of GNP. perhaps insolvent institutions account for another 4.4% of financial system deposits. Singapore Domestic commercial banks' non-performing loans 1982 rose to about $ 200 million or 0.63% of GDP. Taiwan 4 trust companies and II cooperatives failed. 1983-84 1995 Failure of credit cooperative Changua Fourth in late July which sparks runs on other credit unions in central and southern Taiwan. .. ... .. . . , . . . .:- - , --:. : -- Australia 2 large banks received capital from government to 1989/90 cover losses. Unofficial estimates of losses put at France Credit Lyonnais. about $10 billion, the largest single 1994/95 bank failure up to that time. Germany So called Giroinstitutions faced problems. late 1970s Great Britain "Secondary Banking Crisis". 1974- 1976 New Zealand 1987-90 Annex Table 1 20 Episodes of Major Bank Insolvencies 1. Episodes of Systemic Banking Crises The United States More than 1,400 savings & loans and 1,300 banks Cost of savings & loan clean up 1984-91 failed. amounted to an estimated US$ 180 billion equivalent to 3.2% of GDP. Sources: World Bank Financial Sector Reviews and Country Economic Memoranda, interviews with Bank Financial Sector Specialists, and: Sheng, 1995; World Bank, 1990, p.53; IMF, 1995; Baer/Klingebiel, 1994; Vittas, 1992; V. Sundararajan, V. Thomas, J.T. Balino, 1991; The Banker. 1995; Jorge Marshall & K. Schmidt-Hebbel, 1994; Rodriguez, 1994; World Bank. 1989; Felipe Morris/ Mark Dorfman/ Jose Pedro Ortiz & Maria Claudio Franco. 1990: Blass and Grossman, 1995: Fleming and Talley, 1996; The Economist, 1995-96: Financial Times, 1995; Borish, Long, and Noel. 1994. Table 2: The Main Characteristics of the Banking Crises 21 Af,rica Benin * public banks lending to parastatal * 80% of entire l losses amounted to 95hn . all existing banks were liquidated and tour -25.0, 27 (1985-87) 1988-90 enterprises which were facing severe banking system's loan CFA franc which was private banks w ith an initial capital of CFA I liquidity/solvency problems due to portfolio was non- equivalent to 17% of GDP. billion each were established during the period inappropriate financial and economic performing. 1988-90. policies and tight central control on the economv: terms of trade deterioration and post 1982 slump in regional trade contributed to dismal financial situation of public sector enterprises; a crisis became apparent when govemment's decision to sequester the bank accounts of tax delinquent prompted large outflow of funds, which coupled with large share of NPLs. resulted in liquidity crisis in last quarter of 1987. C6te * To r deterioration of 40%/, led to public * 4 big banks of which 3 * 25% ofGDP . 2 public housing development banks and 2 -3.0. 2.3 (1985 - 87) d'lvoire sector arrears at commercial banks: definitely and I perhaps industrial development banks were liquidated in 1988-91 * excessive anld distorted taxation, real insolvent = 90% of 1988 and 89; appreciation of foreign exchange rate banking svstem loans or * the agricultural development (B3NDA) with rendered corporate sector increasingly 65-70% of banking liabilities of CFA 48.7bn was liquidated in 1991 uncompetitive and reduced its ability to system assets. after recapitalization efforts proved fruitless: service debt; . 4 large banks accounting for 65-70% of * shortcomings in regulatory and financial system assets were recapitalized; accounting framework as well as * recapitalization involved three steps: (i) inadequate banking supervision; settlement of govemment direct and indirect banking sector also suffered from high arrears; (ii) absorption of past losses by existiig operating costs, inadequate loan public and private shareholders on a pro rata monitoring and politically motivated loans. basis; (iii) recapitalization by main private shareholders, wvith government reducing its stake to maximum of 20%; (iv) (iv) settlement of govemment arrears to domestic creditors other than banking sector. Table 2: The Main Characteristics of the Banking Crises 22 ...*.*.*.*. . . . ..1 , *" ...................... ................ Ghana . serious shortcomings in regulatory and . 7 audited banks (out of * 6%ofGDP: . commcrcial banking sector:rcstructuringof -'5.4.-1.7(1979-81) 1982-89 accounting framezsork, inadequate banking 11) insolvent . depositors did not bear 9 banks was achieved by removing trom banks' 7.6 .52 (1986-88) supervision and inappropriate sector * rural banking sector any losses in nominal ioan portfolio part of their non-perf. loans to a policies: afiected. terms, but had home recover.agency: * deficient bank management and internal significant losses in earlier * part of non-perform. private sector loans controls: years due to financial was replaced by government bonds; public * massive devaluation and dismantling repression and inflation sector loans were replaced by converting into of protectionist barriers reduced corporate tax. equity govemment loans or other claims: sector's ability to repay its debt. * injection of additional capital where necessary to meet prudential framework; Guinea . bank loans granted on basis of . 6 banks accounting for * repayment ot'deposits . 6 public banks were liquidated while the 1985 developmcnt plan; 99% of total system amounted to 3% of 1986 only bank in private ownership was allowed to a insolvent state and private sector deposits. GDP. stay in market with promise of foreign enterprises; shareholders to inject new capital; * gross mismanagement, fraud and * govemment offered generous incentive irregularities in banks, deficient bank packages in order to overcome foreign banks management, lack of intemal controls reluctance to come into Guinea. serious shortcomings in regulatory and accounting framework as well as inadequate banking supervision; * weak functioning ofjudicial system. Guinea . deficient bank management, lack of * 2 banks = 22.4% of . govemment's restructuring plan only dealt 7.3, 3.4 (1991-93) 1993/4 intemal controls, lack of loan monitoring; financial system assets; with tsvo technically insolvent banks: * serious shortcomings in regulatory and * one other in serious * on private bank's past losses were absorbed accounting framework as well as trouble; by major private shareholder and govemment; inadequate banking supervision; * 3 banks together = government participation in form of banking sector also suffered from high 45% of market. subordinated loan with 3 year maturity: in event operating costs; of insufficient loan recovery, loan will be * weak functioning ofjudicial system. forgiven; * other bank's losses were completely absorbed by govemment as negotiations with foreign shareholder failed and recapitalized to fulfill minimum capital standards; was then placed under interim administration while long term solution is sought; Table 2: The Main Characteristics of the Banking Crises 23 Kenya * ToT shock and drought; 4 banks and 24 non- restructuring measures put into place dealt -7.4, 1.4 (1990-93) 1986-89 e relaxation of licensing requirements bank financial institutions with institutions accounting for 2% of banking resulted in rapid growth of financial faced liquidity and system; institutions: solvency problems * eight banks and one housing companies (2% * many of new non-bank financial together accounting for of financial system assets) were liquidated and institutions operated without sufficient 15% of total liabilities of their respective assets and liability transferred to capital base, were subject to less stringent financial system; a newly created institution; controls and were often poorly managed; * newly created institution was then * political motivated loans; recapitalized by converting parastatal deposits • inadequate prudential framework and into equity and an injection of equity by the inadequate supervisory agency which deposit insurance fund. enforcement capacity was severely * in another restructuring phase, govemment hindered by lack of qualified staff and liquidated 9 institutions and merged one other inadequate infornation; institution with newly created institution; together institution accounted for another 2% of financial system assets. Madagascar a political interference * all 3 public banks * about FMG 19 billion * 3 state-owned banks cleaned portfolios using 4.3, 1.4 (1985-87) 1984-89 . loans to SOEs insolvent, about 40% of reserves and interest-free govemment loans; * deficient bank management loans doubtful or loss about FMG 12 billion loans cleared. 2 of the * 2 banks later partially banks partially privatized in 1991 privatized Nigeria * large overhang of uncollectible loans: a 1993: 24 banks * so far, 4 banks have seen their licenses -17.8, 5.6 (1987-89) 1990s * political interference: insolvent - 20% of revoked and 6 public banks, owned by state * macro instability: banking system assets: government, have been taken over by Central * deficient bank management, insider * 1995: almost half of Bank; lending, fraud, etc.; banks are reported to be * lack of strong regulatoD and in distress. supervisory enforcement and lack of political will; * inaction towards insolvent banks. Table 2: The Main Characteristics of the Banking Crises 24 Senegal * deteriorating Tol, drought; * 7 banks were * US$ 830 million. * 6 banks were liquidated; their assets and -1.9, 4.1 (1985-87) 1988-91 * inappropriate financial sector policies liquidated accounting for equivalent to 17% of GDP. liabilities were transferred to the national (artificially low interest rates, preferential 20 to 30% of financial recovery agency; rates to selected sectors); system assets. * 2 banks (all of which had less than 25% of * a lack of fiscal discipline; govemment ownership) wvere restructured and * virtual absence of bank supervision: recapitalized: another banks was recapitalized * banks plagued by poor management. with financial contributions from shareholders, govemment interference, and lack of the BCEAO, and the Govemment; intemal controls on lending decisions. . finally, sound assets of one other banks were separated out and used to create a new bank. Indonesia * boom and bust cycle; liberalization of * classified assets equal * resolution cost for * preferred resolution mechanism for private 30.9, 7.2 (1989-1991) 1992-94 banking sector followed by credit growth; to over 14% of banking private banks: NA; banks are to either merge insolvent institution tight monetary policy adopted in 1990/1 system assets with over * recapitalization cost of with healthy bank providing new entity with resulted in sharp rise in real interest rates 70% in the state banks. five public banks expected Central Bank assistance or to extend soft loans; that caused many borrowers to default on to amount to US $ 2.7 bn * one bank was liquidated; their loans; or 1.8%/o in 1993 GDP. * five state commercial banks were * deregulation of banking sector began 5 recapitalized by turning liquidity credit into years before improvements in supervision equity; were made and 8 years before capital a in general, Central Banks tries to avoid to requirements raised; liquidate banks because of legal difficulties (no lending to related parties; bankruptcy code). • deficiencies in bank management and lack of intemal controls; a public bank problems attributed to political loans/connected lending/ fraudulent loans and bad credit decisions. Table 2: The Main Characteristics of the Banking Crises 25 >'S~~~~~~~~e Malaysia * economic recession brought on by a * 24 DITCs 3.3% of * reported losses * commercial banking sector: high interest 13.8 6.7 (1982-84) 1985-88 sharp decline in commodity prices financial system deposits; equivalent to 4.7% of GNP rates spread; worldwide; and * depositors of DTCs * in case of 4 marginally solvent commercial * sharp fall in asset prices (bursting of * 4 insolvent banks = exposed to possible losses. banks existing shareholders were required to bubble); 4.4% of financial system in ject new capital through rights issue while a weak export and poor domestic demand deposits. Central Bank supplemented proceeds with lead to large financial losses for enough capital to meet minimum capital corporations which in tum reduced their adequacy requirements; ability to service their debt; * Deposit Taking Cooperatives sector: II with shortcomings in regulatory and accounting relatively small capital deficiencies received framework for Deposit Taking loans at concessional rates and were taken over Cooperatives sector as well as inadequate by appointed bank or finance company (f. c.); 12 supervision for DTC sector. DTCs with moderate to heavy losses were absorbed into one singlelicensed f. c.; I large DTC was taken over by a publicly listed company and its finance company subsidiary. Philippines * increase in oil prices and intemational . 2 public banks (50% . at its peak. central bank * Central Bank provided liquidity loans to 10.21. 5.66 (1978-80) 1981-87 interest rates. coupled with deterioration of of banking system assets) assistance amounted to ailing banks under oversight of central bank ToT; extemal debt crisis and recession; * 6 private banks (12% 19.1 billion pesos or 3% of conservator; * lending to related parties and politically of banking system assets): GDP; * unviable and insolvent institutions wkere motivated loans; * 32 thrifts equivalent to * depositors bore losses liquidated and depositors paid off; shortcomings in regulatory and accounting 53.2% of thrift banking equivalent to 5.2% of total * during crisis, authorities arranged for framework as well as inadequate banking assets; deposits or 0.6% of GNP in govemment financial institutions to take over 6 supervision; * and 128 rural banks. 1987. private commercial banks; 2 government banks * deficient bank management, lack of that together accounted for 50% of banking intemal controls, high operating costs, and assets transferred their non-performing assets to exchange rate losses. a government recovery agency; government then recapitalized banks and assumed deposit liabilities equal in amount to book value of non- performing assets transferred minus capital infusion; * all in all between 1981 and mid 1987, 3 commercial banks. 128 rural banks. and 32 thrift institutions failed: Table 2: The Main Characteristics of the Banking Crises 26 84- -t~~~~~~~~~~~~~~~~~~.8 .8.-8-88888888888888888-888888................................ ......... . g g n v ......... .. g v ...... 2 g 2 ...... g .. . a.2~~~~~~~~~~~~~~~~~.................. . ...... Thailand * oil shock in 1979/80 led to sharp * financial institutions. * government cost for 50 * 24 finance companies vsere closed. 3.6. 5.3(1980-82) 1983-87 decline in growth in early 19XOs and intervened in. accounted finance companies * 9 finance companies were merged into 2 nexs devaluation of exchange rate, tight for 25% of all financial estimated at 0.5% of GNP; companies: monetary policy and high international system assets: * government cost for * for commercial banks: creation of joint interest rates reduced corporate sector's * 3 commercial banks subsidized loans amounted goverment/commercial hank "lifeboat fund to ability to service its debt; considered to he insol- to about 0.2% of GDP provide liquidity, emergency loans and soft * deficient bank management, lack of vent accounted for 14.1% annually: capital; participating institutions were required internal control and fraud & real estate and of commercial bank * depositors of finance to inject new capital or surrender 25% of their exchange rate transactions; assets. companies bore shares to government to be res. d to original * shortcomings in regulatory and approximately up to 50% owners at predetermined rates within five years. accounting framnework as xvell as of losses in real terms. * finance and securities companies: also inadequate supervision, creation of lifeboat fund; participating institutions had to fulfill certain conditions to join scheme; * 13 finance and 8 commercial banks received support including financial subsidies in form of soft loans. Argentina * high real interest rates, overvaluation of * 1980-83: 72 * 55.3% ofGiDP. * betweenl1980-821liquidation was main 20.2. 3.4 (1977-79) 1980-82 the exchange rate, and higher real wages institutions wsere failure resolution device: 72 institutions were reduced private enterprise sector's ability liquidated, liquidated; to service its debt; * in 1982. central bank put in place measures * liberalization of financial sector without to assist insolvent borrowers and banks by adequate strengthening of regulatory followving tvo basic policies: it sub,jected interest framework and bank supervision; rates to a ceiling that permitted banks to reducee weak hank supervision and enforcement interest rates to borrowers to manageable levels, was coupled with 100% state guarantee on and it increased reserve requirements that, in hank deposits which led to moral hazard. turn, provided central bank with resources to lend to most troubled institutions: * furhermore, interest rate controls produced negative real interest rates transferring wealth from depositors to borrowers. Table 2: The Main Characteristics of the Banking Crises 27 .....W... Argentina * public sector debt distress coupled with * all banks or 50% of * conversion of time * implementation of BONEX plan that forced 8.8, 2.7 (1986-88) 1989-90 loss of access to intemational credit deposits. deposits into government conversion of virtually all domestic commercial markets; bonds imposed losses on bank 7-day time deposits in private and public * immediate trigger of 1989 crisis was time deposit holders, since banks into a combination of cash (up to government's decision to free foreign Bonex bonds traded equivalent of Us $ 500) and US $ 3.5 billion of exchange market and remove all price inm:nediatelv at a 2/3 BONES (extemal) govemment bonds; dollar controls which provoked a sudden price discount and did not carry denominated bonds had a maturity of 10 years, increase and led to bank deposit any interest for 24 months. carried a 2 year grace period, and paid interest of withdrawals. LIBOR plus small spread: * technically conversion worked as follows: treasury purchased commercial banks' voluntary holdings of seven day interest bearing central bank and treasury obligations in return for BONEX bonds: these were then used by banks too make the conversion. Argentina * crisis unfolded with December 20. * suspension of eight * N/A * Central Bank provided liquidity assistance 16.7. 7.4 (1992-94) 1995 1994, devaluation in Mexico which was banks and collapse of through different mechanism: followed by a withdrawal of foreign three banks. * implementation of Deposit Insurance investors from Latin American countries; Scheme in April 1995 to boost confidence in events weakened position of wholesale financial sector: banks that had significant inventories of government securities on which they were incurring capital losses due to the increase in interest rates: - crisis uncovered inefficiencies in the Argentine banking system which is in period of consolidation; * non-financial firms affected by downturn. Table 2: The Main Characteristics of the Banking Crises 28 . .* . f R Brazil * dissipation of inflation tax wvhich * Banespa with assets of * estimate: negative net . 2 big state banks - Banespa, Banerj - that 6.3, 1.2 (1991-93) 1994 brought weaknesses (high operating costs. R 17.5 billion of assets worth of selected state and account for roughly 20% of financial system poor portfolio, excessive loan equivalent to 5% of total federal banks 5- 10% of assets were taken over by Central Bank; as well concentration) in public banking system to banking assets; GDP. as Banco Economico and 4 other smaller banks surface; * Banerj with assets of R that account for 1-2% of financial system assets; * deficiencies in regulatory and 2.7 billion; * plan for Banespan is to recapitalize bank accounting framework as well as * both banks account with state and federal funds; exercise will cost inadequate bank supervision in public for roughly 20% of about US $ 7.5 bn or 1% of GDP; however, plan banking system; financial system assets; still needs to be approved by respective state and * directed credit programs and lending to * Banco Economico federal parliament: SOEs. * 4 smaller banks. * unclear at this moment whether and how state and federal government will share in cost for recapitalizing bank; in the meantime, management consultancy group has taken over management of bank and has been streamlining its operation by letting go off people and shutting down branches: * 2 of the smaller private banks were liquidated: Banco Economico will most probably be recapitalized with government funds. Chile * high levels of domestic and * 1983:7 banks& I * total costs estimated at * tvo successive waves of government 41.6. 8.1 (1978-80) 1981-83 international interest rates reduced financiera accounting for 41.2% of GDP; (average of interventions: November 1981 and January corporate sector's ability to repay debt; 45% of total assets. 10.3% of GDP from 1982- 1983; * deterioration of ToT due to a sharp 85). * 1981-1982: authorities considered banking decline in the price of copper; problems as temporary; measures were adopted * overvalued exchange rate coupled with providing institutions with increased accounting wage rigidity: flexibility to reflect their losses: * speculation in shares and properties and * end of 1982: change of policy towards the bursting of the bubble; efforts to recognize and allocate losses: inadequate strengthening of regulatory and * recapitalization efforts involved direct accounting framewvork and banking purchase of substandard loans from the portfolio supervision. of banks with repurchase agreement at face value. Table 2: The Main Characteristics of the Banking Crises 29 Colombia * loan concentration and fraud; * crisis affected institu- * rough estimate: 5%of * one small bank (accounting for 2.3% of all 10.9, 3.9(1979-81) 1982-87 * financial system liberalization without tions that controlled 25% GDP. banking system assets was liquidated: strengthening of regulatory and accounting of banking system assets. * 5 banks were nationalized accounting for framework as well as bank supervision; roughly 23% of financial system assets. * deficient bank management. * overvaluation of currency, excessive private external borrowing, indebtedness and mismatched exchange risk; * private sector also hurt by sharp slowdown in growth. Uruguay a fall in beef prices (main export), * affected institutions = * estimated at $350 * 2 banks were liquidated; 21.6, 5.8 (1978-80) 1981-84 collapse of real estate boom, and reduced 30% of financial system million or 7% of GNP; * 7 banks, among them the largest private Argentine demand coupled with steep deposits; * Central Bank's quasi- bank were taken over by govemment owned rising real interest rates reduced highly * insolvent banks = 20% fiscal losses associated wvith banks; as a result, 75% of deposits ended in leveraged corporate sector's abilitv to of financial system dep.. subsidized credit govemment owned banks; service its debt: operations and purchase of * 5 banks were taken over by foreign banks deficient bank management: loan portfolios amounted to with the Central Bank buying the bad loan * shortcomings in regulatorv and 24.2% of GDP during 1982 portfolio of these banks in exchange for bonds accounting framework and inadequate to 1985. and promissory notes. bank supervision. Venezuela l liberalization of financial system * insolvent banks * up to March 1995. . govemment provided financial assistance by -6.0, 2.8 (1992-93) 1994/95 without adequate strengthening of accounted for 30% of govemment has spent $ 7 state run guarantee fund to over 15 institutions; regulatory and accounting framework as financial system deposits. billion equivalent to 13% a Banco Latino was reopened after a 313 bn well as bank supervision; of GDP: bolivar government bailout. * poor lending decisions, deficient bank * total estimated losses management; put at over 18% of GDP. * collapse of bolivar; * overbanked system. United States 1984-91 * deficient bank management * More than 1,400 3-5% of GDP * For S&Ls, Resolution Trust Corporation 1.6, 1.2 (1981-83) • inadequate supervision and poor savings & loans and created to resolve all insolvent thrifts, using regulation 1.300 banks failed. govemment funds and assessments on remaining * macro volatility, regional recessions thrifts. Parts of borderline or insolvent banks sold off. Commercial banks handled by various regulators, relying on mergers Table 2: The Main Characteristics of the Banking Crises 30 ;~~~~~~~~~~~~~~~~~~~~ ...... ..... .-. j ; X:- - j;:E--<; EES i- : ----i:: Canes .f &e Cfls~~~ Mitgnitvde at the Resoluflou Casts Rnqtu#km M.......ni.m........... .. .......... C..,-,. .-...t.,... Europeand Centra/Asa:: : : : : : : ::::i: ::: Estonia . implemenitation nf currenc\ board * insolvent banks = 41l0o * recapitalization outlays * 12 banks xxere liquidated amo)ng [bent 'I'artu -41.2. -16.8 (1992-93) 1992 - 94 brought orowing bad debt problemi Of some of banking ssxstenm assets: For new entity 30)0 mill: Bank)( accottnting for 15O% of commercial bank hank.s to surface which could tno longer * Social bank which ELKx or 1 .4°.; of GOP; assets) and Social Bank (at point in time it eam large profits from foreign exchange controlled about bo)o of' * in case of'social bank. experienced problems was 3rd largest bank); trading. or by onlending central bank credit financial sxstett assets. goxerttmenit might incur * 2 other insolvent banks were merged and at high spreads: losses on not recovering its news entity was to be recapitalized: at the sante * d4Siciertt bank management and funds deposited at bank: time frozen assets and deposits of two banks imlpr ropriate lendiny polities: * some ~depositor losses at vjere to be moved to Cetntral Bank and placed in I rozen deposits in Ruissia; selected bantks. fund known as Vl.B fund; former depositors of * collapse of Social Bank caused by bad txxo banks received tradeable certificate of this loans and fraud.. fund. * in order to restore public confidetnce in banking system. wholesale banks x.ere required to apply f'or relicensing. F'inland * deregulation of finiancial sy stcm * sax ings bankinig . recap. costs amounted to * the Governtnent Guarantee Fund (GGF) has 1 1.9. 3.5 (1 1988-90) 1991-1993 'aithottt adequate strengthening Of sector badls af'fected; 8%i of'(Ji)B sttpported thte banking sy^stem in two ways: (i) a regulator! and supervisory^ frameonork: . govertttnent took big commercial bank was acquired from Central * boom and bust cy cle: control of' Skophanik bank (C. B. had taken control of bank in 1991. * collapse in soviet trade, deterioration of (Apex bank for Finnish it then recapitalized institution and bougbt its To1':; savings banks) in August largest risk exposures): (ii) GGFE sttpported 41 *rise in real interest rates adverse)> 1991 savhitts bank that were later amalgated to form affected repayment capacit> of banks' the Sav ings Bank of Finlanid (SBF); this wxas borrowers; done by means of a capital injection and the * depreciation of marka also adversely gratttinig of guarantees. afftected repayment capacity of private sector indebted in fo)reign exchange; * excessive risk taking in lending. poor decisions, lack of intemnal eontttols. Hungary * inheritance of largely non-performing * 2nd half of 1993: 8 * cost of repleated . government has implemented so far4 14.8. -4.9 (1989-91) 1990s portfolio from former monobattks; banks were fottnd to be rcapitalization efforts differetnt recapitalization schemes. * impact of recession of real sector on insolvent =25%-/ of estimated at 10% of (iDP econonty: demise of CMEA: financial sy stem assets. so far. I ack of bankinig expertise and poor lending policies; * moral hazard due to repetitive bank bailouts. Table 2: The Main Characteristics of the Banking Crises 31 Latvia * deficient bank management * affected banks * not yet clear * Bank Baltija taken over by government. with -66.5. -25.5 (1992-93) 1994- * inadequate supervision and accounted for 40% of $260 million in losses as of Julv 1995. 3 other regulation total banking system banks in the process of being closed * fraud assets. Poland . severe economic shocks that Polish *7 of 9 treasurv-owned * treasurv-owned banks: * inflation; -23.8,-2.4 (1988-1990) 1992-94 enterprises suffered in 1990 and 1991 (e.g. commercial banks that tLS$ 750 millions =%of * 9 treasurv owned banks: in late 1991, MoF -21.2. -5.3 (1990-1992) demise of CMEA trade): accounted roughly for 1993 GDP; required banks to undergo audit from * poor lending decisions and lack of 25% of total financial a Bank for Food independent outside auditors; one bank was banking expertise. system assets; Economy and cooperative privatized; seven banks were recapitalized under * Bank for Food banking sector: US $ 900 condition that their clean up their balance sheet economy and cooperative millions; or run the risk of losing control to Central Bank; banking sector accounting each bank was required to establish a work out for roughly 20% of department and assign special management financial system assets: teams to run and monitor portfolios; * Bank for Food Economy has been recapitalized twice but it still insolxent: * cooperative banking sector: in 1994. NBP suspended activities of 50 cooperative banks. and 30 wvere declared bankrupt. Spain . combination of oil shock 73/74 and * banks affected held . 5.6% of 1985 GDP. * 3 small institutions were liquidated: 4.4. 2.3 (1974-76) 1977-1985 inappropriate policy responses to shock; 20% of deposits. . 21 Non-RUMSA banking institutions were * rapid liberalization of banking sector capitalized before they were resold: without adequate strengthening of . 20 RUMSA banking institutions were regulatory and accounting framework as nationalized and later privatized. well as bank supervision: deficient bank management and concentration of loans to related parties. Table 2: The Main Characteristics of the Banking Crises 32 Turkey * 79/80 l'urkey slid into a recession * 5 small banks were * restructuring of 5 banks * initially Central Bank provided liquiditv 3.8, .95 (1979-81) 1982-85 brought on by tight monetary policy; closed down after 1983; 2.5% of GNP; assistance; reduced sharply corporate sector s ability * 2 banks after 1985. government bore also * later it intervened in five small private to service its debt which in turn adversely cost of restructuring other banks. removed their management and declared affected banks; two banks. them bankrupt; liabilities of 4 banks were l liberalization of banking system without transferred to state owned banks; those of fifth adequate strengthening of regulatory' and bank were taken over by largest private bank; accounting framework and bank * a large development bank which was owned supervision; by local banks was recapitalized by its lending to related parties. shareholders and received support from government via long-term loans; * another bank was taken over by government because current shareholders did not recapitalize it. Sources: World Bank Financial Sector Reviews and Country Economic Memoranda, interviews with Bank Financial Sector Specialists. and: Sheng. 1995; World Bank, 1990, p.53: IMF, 1995; Baer/Klingebiel, 1994; Vittas, 1992; V. Sundararajan, V. Thomas, J.T. Balino. 1991; The Banker, 1995; Jorge Marshall & K. Schmidt-Hebbel. 1994: Rodriguez, 1994: World Bank, 1989: Felipe Morris/ Mark Dorfman/ Jose Pedro Ortiz & Maria Claudio Franco. 1990; Blass and Grossman. 1995; Fleming and Talles. 1996: The Economist, 1995-96; Financial Times. 1995; Boris. Long . and Noel, 1994. Table 3: Terms of Trade in Crisis Countries 33 Argentina, 1980-82 -12.08 1975-79 0.07 Argentina, 1989 -10.92 1983-88 0.07 Bangladesh, late 1980s- -11.20 1975-86 0.07 Bangladesh, late 1980s- -20.00 1975-87 0.07 Benin, 1988-90 -42.20 1975-87 0.16 Benin, 1988-90 -53.18 1975-88 0.16 Bolivia, 1986-87 -15.66 1975-85 0.39 Bolivia, 1986-87 -38.89 1975-86 0.39 Brazil, 1995 (1990) -3.54 1975-89 0.07 Bulgaria**, 1990s 8.33 1985-89 0.18 Cameroon, 1987- -55.86 1975-86 0.28 CAR, 1980s& 1994 -10.64 1975-79 0.22 Chad, 1980s& 1990s -28.57 1975-79 0.10 Chad, 1980s& 1990s -15.97 1975-80 0.10 Chile, 1981-83 -9.22 1977-80 0.09 Chile, 1981-83 -21.28 1977-81 0.09 Colombia**. 1982-87 -42.80 1975-81 0.15 Congo, 1980s& 1991 0.89 1975-79 0.29 Congo, 1980s& 1991 37.50 1975-80 0.29 Costa Rica, 1987 -24.69 1975-86 0.11 Costa Rica, 1987 -38.27 1975-87 0.11 Cote d'lvoire, 1988-91 -39.76 1975-87 0.20 Cote d'lvoire, 1988-91 -46.39 1975-88 0.20 Ecuador, early 1980s 15.60 1975-80 0.29 Egypt, 1990-92 -38.71 1984-89 0.26 Egypt, early 1980s, -17.73 1975-79 0.26 Egypt, early 1980s, 11.35 1975-80 0.26 Finland, 1991 -1.89 1975-90 0.09 Ghana** 1982-89 -53.62 1975-81 0.24 Ghana** 1982-89 -59.59 1975-82 0.24 Ghana**, 1995 9.90 1990-93 0.24 Guinea 1985, 1994-95 -24.55 1975-84 0.19 Hungary, 1991-95 -11.76 1975-89 0.05 India, 1994-95 -8.00 1975-92 0.23 Japan**, 1990s -4.50 1975-89 0.22 Kenya**, 1985-89 -39.03 1975-84 0.16 Kenya**. 1985-89 -49.19 1975-85 0.16 Kenya**, 1992, 1993-96 14.80 1990-91 0.16 Kuwait, 1980s 6.67 1975-79 0.37 Kuwait, 1 980s 53.33 1975-80 0.37 Madagascar, 1988 -33.33 1975-87 0.14 Madagascar, 1988 -27.33 1975-88 0.14 Mauritania, 1984 -24.11 1975-83 0.08 Mauritania, 1988-94 -15.97 1985-87 0.08 Mauritania, 1988-94 -25.21 1985-88 0.08 Mexico, 1981-91 -4.86 1975-80 0.14 Mexico, 1981-91 1.39 1975-81 0.14 Morocco, early 1980s -31.03 1975-80 0.07 Mozambique, 1987- -20.09 1975-86 0.07 Nepal, 1988 -27.54 1975-87 0.05 Nigeria, 1990s -58.33 1975-89 0.39 Nigeria, 1990s -49.51 1975-90 0.39 Norway**, 1987-89 -26.62 1975-86 0.16 Philippines, 1981-87 -11.30 1975-80 0.07 Philippines, 1981-87 -20.87 1975-81 0.07 Poland**, 1990s 16.55 1975-89 0.07 Poland**, 1990s 0.30 1975-90 0.07 Romania, 1990s -4.85 1975-90 0.21 Table 3: Terms of Trade in Crisis Countries 34 Senegal, 1988-91 -20.63 1975-87 0.05 Spain**, 1977-85 1.16 1975-79 0.15 Spain*, 1977-85 -11.58 1975-80 0.15 Sri Lanka, 1989-93 -40.72 1975-88 0.11 Sweden**, 1991- 0.00 1975-90 0.06 Taiwan**. 1983-84 -15.38 1975-82 0.12 TFanzania. 1987, 1995 -26.1I1 1975-86 0.14 Tanzania. 1987, 1995 -36.31 1975-87 0.14 Thailand, 1983-87 -33.10 1975-82 0.09 Toga, 1993- -52.36 1975-92 0.13 Turkey, 1982-85 -25.00 1975-81 0.13 Turkey, 1994 -2.63 1986-92 0.13 Uganda, 1994 -86.79 1975-92 0.40 Uruguay, 1981-84 -18.25 1975-80 0.05 Venezuela**, 1980 22.04 1975-79 0.27 Venezuela**, 1994-95 -35.56 1981-93 0.27 Zaire -34.01 1975-90 0.12 Australia**. 1989-90 -24.22 1975-88 0.07 France**, 1994-95 2.97 1975-93 0.07 Germany"*, 1989 0.00 1980-88 0.09 Germany**, late 1970's -4.50 1975-76 0.09 Hong Kong, 1982-83 -15.45 1975-81 0.03 Indonesia. 1994 -39.07 1975-92 0.21 Malaysia. 1985-88 -5.93 1975-84 0.14 Malaysia, 1985-88 -13.33 1975-85 0.14 New Zealand**, 1987-90 -16.24 1975-86 0.08 New Zealand**, 1987-90 -7.05 1975-87 0.08 Singapore*,* 1982 2.09 1979-81 0.06 USA**, 1981-91 -18.07 1975-80 0.05 OECD Austria No crisis 0.06 Belguiun No crisis 0.05 Canada" No crisis 0.04 Denmark** No crisis 0.05 Greece No crisis 0.03 Iceland No crisis 0.04 Ireland** No crisis 0.04 Italy No crisis 0.11 Netherlands** No crisis 0.02 Portugal No crisis 0.10 Source: using latest available data World Tables **IFS Table 4: Major Bank Insolvencies- Trade Concentration, Exports year prior to crisis 35 latest % % % available ARGENTINA 6.6 1993 Vegetable products 20.6 Food products 17.2 Live animals 9.7 Minerals 9.5 ARGENTINA 1988 Animal Feed 14.9 Veg. oil 8.7 Wheat 5.4 Meat 4.5 ARGENTINA 1985 Wheat 12.7 Oil seeds 10.2 Veg. oil 10.1 Maize 9.2 ARGENTINA 1980 Wheat 10.2 Meat 8.6 Oil seeds 8.3 Maize 6.4 ARGENTINA 1979 Maize 9.2 Oil seeds 8.8 Meat 8.4 Cereals 6.6 BANGLADESH 10.4 1994 Clothing 60.0 Fisheries 10.8 lute products 10.2 Leather 6.7 BANGLADESH 1982 Textiles 24.3 Woven textiles 18.6 Jute 14.9 Fish 8.4 BENIN 23.4 1985 Cotton 31.5 Cocoa 26.8 Veg. oil 8.3 Coffee 7.1 BOLIVIA 1982 Metals 31.9 Natural gas 27.4 Tin 22.3 Wood 3.2 BRAZIL 10.0 1994 Metallurgical prod. 13.9 Transport equip. 9.7 Soya products 7.1 Chemical prod. 5.9 BRAZIL 1993 Metallurgical prod. 15.8 Transport equip. 10.9 Soya products 8.0 Chemical prod. 6.7 BRAZIL 1990 Coffee 8.4 Iron 7.2 Animal feed 5.6 Footwear 4.2 BULGARIA 48.9 1994 Min., fuels & chem. 26.2 Agric. & food prod. 21.9 Metals & ores 19.7 Textiles 14.0 CAMEROON 20.0 1994 Crude Petro. 54.3 Cocoa 6.3 Coffee 5.0 Cotton 4.3 CAMEROON 1982 Crude Petro. 46.8 Coffee 15.6 Cocoa 14.2 Wood 4.4 CAR 12.4 1994 Diamonds 47.3 Timber 5.3 CAR 1990 Perals 49.0 Coffee 18.6 Cotton 6.9 Wood 6.7 CAR 1980 Coffee 28.4 Pearl 26.0 Wood 24.6 Cotton 7.8 CHAD 17.2 1994 Cotton 35.0 Coffee Timber Mining (diamonds) CHAD 1982 Cotton 79.6 Cotton woven 17.2 Animal feed 2.8 CHAD 1980 Live animals 60.9 Cotton 35.6 Meat 1.9 Fish 1.6 CHILE 30.9 1994 Mining products 44.8 Industrial prod. 44.1 Agri. & fishing 10.6 of which Copper 36.6 CHILE 1980 Copper 45.7 Plastic 5.3 Animal feed 5.1 Metal 4.8 COLOMBIA 19.3 1994 Coffee 24.6 Oil & derivatives 13.7 Coal 6.3 Flowers 5.0 COLOMBIA 1981 Coffee 49.5 Fruit 4.3 Clothing 4.0 Veg. 3.8 COLOMBIA 1980 Coffee 60.1 Sugar 4.9 Clothing 3.0 Petro. prod. 2.6 CONGO 36.9 1989 Crude Petro. 72.7 Wood 10.0 Pearls 4.7 Plywood 2.6 COSTA RICA 39.2 1982 Fruit 28.0 Coffee 27.6 Meat 6.1 Medicinal prod. 3.2 COTE D'IVOIRE 33.6 1994 Cocoa beans 30.5 Timber 10.4 Coffee & products 6.9 Canned fish 4.0 COTE D'IVOIRE 1987 Cocoa beans 35.6 Coffee 18.8 Fruit 8.3 Wood 7.4 ECUADOR 31.0 1980 Crude Petro. 49.2 Coffee 13.1 Cocoa 13.0 Fruit 7.5 EGYPT 26.8 1989 Crude Petro. 21.4 Textiles 17.6 Aluminium 11.0 Cotton 9.3 EGYPT 1980 Crude Petro. 57.8 Cotton 14.6 Textiles 6.4 Petro prod. 6.4 ERITREA 8.0 1989 Coffee 61.5 Hides 13.2 Live Animals 3.3 Veg. 3.3 (ETHIOPIA) A~~''^ 1992 Textiles 13.8 Base Metals 13.1 Minerals & Electricity 11.2 Live animals 10.2 Table 4: Major Bank Insolvencies- Trade Concentration, Exports year prior to crisis 36 latest % % % % available ESTONIA 1990 Machinery 28.3 Food Prod. 16.0 Light industry 15.4 Chemicals 12.1 GHANA 16.0 1994 Gold 45.0 Cocoa beans 25.0 Timber 13.5 GHANA 1985 Cocoa 66.1 Aluminium 5.7 Fish 4.0 Wood & prod. 3.8 GHANA 1980 Cocoa 73.7 Aluminium 18.3 Metal 1.9 GUINEA 13.8 1992 Mining 89.7 Coffee 6.6 Cocoa 1.4 GUINEA 1989 Mining 90.9 Coffee 3.8 Cocoa 1.1 Gold 0.8 HONG KONG 143.8 1989 Outervear 24.8 Watches 7.5 Telecom equip. 5.2 Toys 3.9 HONG KONG 1980 Clothing 32.7 Watches 9.2 Toys 8.8 Telecom. equip. 6.7 HUNGARY 33.3 1994 Raw materials 30.1 Consumer goods 21.1 Food products 17.6 Capital equip. 11.6 HUNGARY 1989 Buses 3.4 Steel 3.0 Meat 2.9 Oil products 2.6 INDIA 9.9 1990 Pearls 18.7 Women's clothing 5.2 Cotton fabrics 3.7 Leather 3.6 JAPAN 10.2 1990 Cars 15.1 Telecom equip. 5.6 Computers 4.2 Transistors 4.2 KENYA 26.8 1989 Coffee 23.8 Tea 22.7 Petro. prod. 12.1 Veg. materials 4.9 KENYA 1982 Petro. 27.4 Coffee 26.5 Tea 14.2 Cement 3.7 KUWAIT 35.8 1982 Crude petro. 73.1 Petro prod. 18.5 Gas 4.8 LATVIA 35.2 1994 Wood 21.3 Textiles 13.2 Foodstuffs 12.8 Metals 10.1 MADAGASCAR 16.7 1985 Coffee 39.1 Spices 28.5 Fish 7.3 Cotton fabrics 3.8 MAURITANIA 38.8 1989 Frozen Shellfish 42.9 Iron ore 39.0 Fish 10.1 Petro. prod. 3.5 MEXICO 12.6 1990 Crude Petro 38.4 Engines 6.9 Buses 6.5 Coffee 2.6 MEXICO 1980 Crude Petro 61.6 Gas 3.3 Coffee 2.9 Petro prod. 2.8 MOROCCO 22.6 1980 Fertilizer 31.2 Fruit 12.3 Inorganic elements 8.2 Metal 5.7 MOZAMBIQUE 28.9 1982 Maize 17.9 Sugar 17.3 Fruit 12.4 Iron 8.8 NEPAL 19.5 1985 Rugs 14.5 Clothing 12.1 Rice 7.4 Veg. 6.5 NIGERIA 39.1 1994 Crude Petro. 87.5 Cocoa beans 7.5 Rubber 3.8 NIGERIA 1989 Crude Petro. 91.5 Cocoa beans 3.1 Petro. products 1.1 Rubber 0.8 NORWAY 43.2 1982 Crude Petro. 28.2 Gas 19.2 Ships 7.1 Aluminium 4.4 PARAGUAY 22.2 1990 Coton 36.0 Seeds 33.0 Meat 5.5 Animal feed 4.8 PHILIPPINES 29.0 1994 Electrical equip. 26.4 Garments 16.9 Copper 2.8 Coconut oil 2.7 PHILIPPINES 1980 Metals 15.7 Sugar 11.7 Veg. oil 9.8 Clothing 4.9 POLAND 19.9 1994 Machinery & equip 23.6 Chemicals 11.8 Food 9.5 Coal 6.8 POLAND 1991 Coal 6.7 Copper 4.6 Ships 2.3 Iron 2.3 RUSSIA 28.1 1993 Oil & gas 50.0 Minerals & metal 20.0 Machinery 7.0 Chem. prod. 6.0 SENEGAL 22.6 1985 Fish 14.4 Veg. oil 13.4 Fertilizer 11.6 Canned Fish 11.6 SLOVENIA 59.7 SPAIN 17.6 1994 Raw materials 34.5 Consumer dur. 16.3 Capital goods 11.4 Foodstuffs 10.8 SPAIN 1976-77 Motor Vech. 8.8 Fruit 5.2 Footwear 4.7 Iron & Steel 4.4 '10 X o 41QR9 Tea 95 A W--" o 110 (\ D-R 0 Riihht,r AR Table 4: Major Bank Insolvencies- Trade Concentration, Exports year prior to crisis 37 latest % % % % available TANZANIA 21.1 1987 Coffee 26.1 Cotton 23.8 Manf. 19.0 Minerals 4.3 THAILAND 35.7 1994 Textiles & garments 10.1 Comp. & parts 5.5 Elect. appliances 5.0 Precious stones 3.9 THAILAND 1990 Rice 8.2 Rubber 6.8 Veg. 6.1 Fish 5.0 THAILAND 1982 Rice 17.7 Veg. 11.5 Rubber 7.3 Sugar& Honey 6.9 THAILAND 1980 Rice 15.0 Veg. 11.7 Rubber 9.5 Tin 8.7 TOGO 32.4 1990 Fertilizer 47.8 Cotton 14.6 Coffee 10.9 Cocoa 10.2 TURKEY 20.8 1994 Clothing 25.4 Iron & steel 12.8 Textiles & carpets 4.7 Synthetic fibers 3.8 TURKEY 1980 Fruit 18.0 Cotton 11.3 Tobacco 8.0 Textiles 6.9 UGANDA 6.4 1989 Coffee 96.1 Cotton 1.3 Tea 1.0 Fruit 0.3 URUGUAY 21.5 1994 Meat & products 25.6 Textiles 20.4 Processed rice 7.9 Hides 7.0 URUGUAY 1980 Wool 20.9 Meat 17.2 Clothing 6.9 Rice 6.1 VENEZUELA 1993 Petroleum & prods. 90.5 Aluminium 4.3 Iron ore 2.1 Steel 2.0 VENEZUELA 1990 Petroleum 51.4 Petro. prod. 32.5 Aluminium 6.3 Gold 1.2 VENEZUELA 1980 Petroleum 63.0 Petro. prod. 28.6 Aluminium 2.1 Iron ore 1.5 ZAIRE 21.6 1989 Copper 38.1 Coffee 15.2 Crude petro. 12.7 AUSTRALIA 18.7 1994 Metals & Minerals 21.4 Coal & Petroleum 17.6 Gold 9.0 Wool 8.8 AUSTRALIA 1985 Coal 15.9 Wheat 9.4 Wool 8.3 Iron ore 6.4 FRANCE 23.1 1990 Cars 6.0 Motor veh. parts 4.0 Alcoholic bev. 3.2 Aircraft 2.5 GERMANY 33.5 1985 Cars 15.3 Machines 8.0 Organic chem. 3.6 Plastic 3.4 INDONESIA 29.3 1994 Crude oil & prod. 15.5 Textiles 15.3 Wood & prod. 14.1 Natural gas 9.4 INDONESIA 1991 Crude oil & prod. 27.8 Gas 13.2 Plywood 10.8 Textiles 6.7 MALAYSIA 78.4 1994 Electronics 51.3 Petroleum & LNG 6.0 Palm oil 5.6 Logs& timber 4.6 MALAYSIA 1984 Crude Petro 23.3 Veg. oil 12.8 Electronics 12.6 Rubber 10.3 NEW ZEALAND 30.8 1982 Meat 23.5 Wool 13.2 Butter 9.8 Milk 6.7 SINGAPORE 173.5 1986 Machinery 38.6 Min. fuels 20.7 Manf. goods 7.4 Chem. 5.8 TAIWAN 1983 Crops 47.5 Livestock 30.0 Fisheries 21.0 Forestry 1.5 UNITED STATES 10.6 1980 Cars 6.7 Machines 6.0 Aircraft 6.0 Maize 4.0 AUSTRIA 39.6 1994 Machinery Inter. Manf. Consumer Goods Chem. products CANADA 26.7 1994 Motor Veh. & parts 35.4 Mach. & Equip. 26.3 Other indust. prod. 23.8 Forest products 13.9 LUXEMBOURG 89.1 1994 Machinery Chemicals Metals Food Source: 1994 data was obtained from the Economist Intelligence Unit, all other years obtained from UNCTAD- Handbook of Inter. Trade and Dev. Table 5: Characterization of Restructuring Exercises 38 Afhcio.. .... Benin * during 1989-91. * regulatory framework: * hanks fall under * NA * yes * set up of * yes; 1988-90 government implemented introduction of new prudential supranational regional Recovery Trust * two of the bank financial and economic ratios: a risk-weighted capital- banking commission Fund; managers went to reforms aimed at mitigating to-asset ratio (initially set at 4%. established in 1990; * until July 1995, prison. extemal and internal to be raised to 8%), minimum * commission has full recovered 17 bn imbalances; ratio of 75% of long-term responsibility to undertake CFA or 15.4%; * program encompassed resources to long-term credit, off- and on-site * debt recovery is reform of the current budget, loans and commitment to one supervision, power to hampered by legal general public sector single borrower limited to 100% issue cease and desist environment. management and public of a bank's capital base, orders, remove enterprise sector reform; minimum liquidity ratio set at management and despite implementation 60%; withdraw bank's license to problems, macro environment * accounting framework: NA. operate. relatively favorable today. C6te d'Ivoire * in aftermath, pursuit of * also member of BCEAO * also member of * no * not clear; * set up of a * yes 1988-91 tight fiscal and monetary therefore, see Benin. BCEAO therefore, see * some Recovery Trust policy; Benin. rescheduling of Fund; * devaluation of currency short term debt * but recoveries (CFA franc). into long term were disappointing loans. and hampered by deficient legal environment for enforcement of loan contracts. Ghana * since 1992, * yes * yes. * yes; yearly * NA * yes (NPART) * some changes in 1982-89 macroeconomic control has audits by extemal * banks: NA bank management been slipping with monetary auditors. were made; and fiscal control problems. * twinning arrangement with foreign experts. Guinea * large devaluation of * some changes made but * yes, but unsuccessful * no * NA * first five years * banks were 1985 Guinean currency; successful major deficiencies not (connected lending). after closure 3% of liquidated; in bringing down inflation but addressed. loan portfolio was * no information less so in cutting budget recov.. what happened to deficit (still running at 7 - 8% senior managers. of GDP). Table 5: Characterization of Restructuring Exercises 39 3g~~~~~x..: g .*i 0 g|I1'111 .~~~~~. . ... * :a................. . : . .................. .............. Guinea * successful in bringing * some changes were made but * yes, but still not * NA * NA; * poor legal * yes 1994-95 down government deficit still inefficient. adequate supervising publishing of framework proved moderately. banks and enforcing central registry to be a hindrance in regulations. of defaulting recovery of loans. borrowers. Kenya * government embarked on * the revision of the Banking * new reporting formats * yes * yes in case * yes in case of * yes; 1985-1989 major stabilization and Act in 1989 reporting, audit and and revised examination of consolidated consolidated bank * 15% of adjustment program in late loan loss provisioning procedures were bank; for the first 2 years; management was 1986 to correct renewed requiremcnts, the stipulation of developed, a computerized * no in case * no in case of later rehired after macro-imbalances resulting capital adequacy requirements off-site surveillance data of other banks other banks. examination process from loss of fiscal discipline and exposure limits; system was installed and in system. showed that they and adverse external * however, new Banking Act the frequency of on-site were neither involved developments; also included a provision under supervision examinations in fraudulent * however, during the early which Central Bank could grant was increased; activities nor 1990s, increases in public exemptions from prudential * however, central bank responsible for sector employment pushed up framework. was not willing to enforce mismanagement in budget deficit and monetary regulatory framework; former banks. expansion fueled inflation; * moreover, with declining terms of trade and slow growth in non-traditional exports, the current account deficit remained high; Madapscar * 1988 Banking Act covered * off-site supervision * no * no * none, but not * yes, some 1984-89 capital, entry, single borrower capacity improved; very effective; managers lost their exposure, though capital * still no on-site better collection jobs requirement not risk-weighted, supervision from losses in the weak provisioning policy, and mid-1990s no general accounting framework. Table 5: Characterization of Restructuring Exercises 40 Senegal * in the aftermath of the * member of BCEAO, * member of BCEAO, * no * yes * set up of * yes 1988-1991 crisis, government therefore see Benin. therefore see Benin. Recovety Trust implemented structural Fund; adjustment program; * recoveries were * however, country disappointing and experienced some serious hampered by setbacks with fiscal policy deficient legal expanding precipitously; environment for * CFA franc was only enforcement of loan devalued in 1994. contracts. Nigeria *NA no * no * no NA * NA (mostly 'no 1990- * government arrears). Indonesia * government pursued tight * yes * yes, but skilled * NA * yes * yes, but * yes, heads of 1992-94 fiscal policy in the aftermath supervisors in short inadequate banks were removed of crisis; supply; imposition of bankruptcy laws but not senior * government loosened sanctions politically limit ability of management monetary policy in the difficult. banks to act against immediate aftermath of the delinquent debtors. crisis and then tightened again. Malaysia * tight fiscal policy and * regulatory framework: * on-site supervision: * NA; * yes * yes * yes 1985-88 accommodative monetary * introduction of minimum improved reporting to policy. adequacy requirements, single central bank, includes size exposure limit of 30'/! of bank of NPLs, exposure to equity, prohibition of lending to share and property directors and staff of banks and financing, loan margins, finance companies; and bank productivity; * introduction of maximum * strengthening of bank ownership limit for an examination staff force individual-family to 10% and and more frequent bank company or cooperative 20%; exams; accounting framework: * establishment of * introduction of guidelines central credit bureau to on suspension of interest on monitor and improve NPLs and provisions on bad and credit information. doubtful debt Table 5: Characterization of Restructuring Exercises 41 .... . :. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ....... .... A N ... _~~~~~~~A Philippines * tightening of monetary * yes but there are still no 0 yes * yes * yes * yes; * yes 198147 policy and adoption of tax standardized rules for asset * set up of reform to improve revenue valuation and loan provisioning; government agency side of budget; to administer and * but central bank continued dispose of NPLs to experience financial with bank problems stemming from involvement and of quasi-fiscal activities and special task- forces. substantial Fx liabilities. Thailand * devaluation of exchange * yes but regulations to loss * yes * NA * NA * banks faced legal * in most cas 1963-87 rate and tight monetary provisions and interest accrual problems in CEOs of troubled policy; can be improved. recovering institutions removed * tightening of fiscal policy delinquent debt; but other managers at led to a budget surplus. * finance & senior levels retained. securities companies joining lifeboat scheme strengthened collection procedures. . - .:. . i ..........~~~~~~~~~~~~~~~~~~~~~~~. .. .. . . ' ':. . -': Argentina * implementation of several * yes, but shortcomings * lack of personnel and * NA * NA * debt relief * NA 198042 stabilization plans which remained; resources negatively measures were put proved to be unsuccessful. * insufficient accounting affected frequency and into place to help practices: banks were allowed to quality of audits. insolvent borrow.. exercise their own judgment for accruing interests on loans; requirements for loan provisions treated leniently; system for loan classification missing. Table 5: Characterization of Restructuring Exercises 42 Argentina * fiscal reform but overall * yes public banking system * structure, staffing and * NA * NA * NA * NA 1989-9) public expenditure has not came under purview of technology of agency has fallen, mainly due to increases suparvisory agency and improved. in transfer to provinces and subjected to the same expenditures at provincial regulations as private banks; level; * regulations strengthened with * introduction of Law of regard to rcserve, capital, Convertibility; de-indexation provisioning and risk of contracts. diversification requirements. Brazil * implementation of Real * implementation of Basle * good enforcement of * NA * yes * legal system * yes Plan; attempt by government capital rules. regulation with regard to hampers loan to de-index, wages, contracts private banks. collection efforts. etc.. Chile * introduction of crawling * yes, capital adequacy * yes, but had already * market-based * halt of * debt relief * yes 981143 peg; standards and compliance ratio started before crisis. monitoring. rollover of measures for * government tried to use were strengthened; banks group loans. borrowers were put monetary policy actively to required to publish information in place. moderate increases in interst on nature and quality of their rates; assets at least three times a year; * structural adjustment * accounting rules were program was implemented. strengthened. Colombia * fiscal adjustment during * yes, strengthening of * yes, now have means * yes * yes * yes; and central * yes 1932-87 1985 - 87, due to structural prudential regulations, loan to supervise system. bank netted changes in fiscal policy; classification requirements and companies' bad debt * sharp devaluation. procedures, interest accrual etc.; and deposits; * code of conduct for bankers * debt relief was introduced. measures were put into place. Table 5: Characterization of Restructuring Exercises 43 Uruguay * government launched * yes, new accounting * yes: number of * yes, for * until 1984, * yes, central bank * yes 1981484 stabilization program in 1985 procedures were introduced supervisors increased; national banks but loans were tried to recover which was aimed at reducing which covered classification of * external auditors are not for local rolled over; NPLs it took over fiscal deficit and monetary new loans and reserves for required to follow stricter banks. * 1985: debt from banks; but growth rates; potential losses; guidelines. moratorium recovery rate * resolution of crisis * introduction (1989) of and debt relief remained dismal. imposed heavy burden on regulations for classifing measures. budget with limited collection assets, provisioning of NPLs, on loans becoming major accounting of interest and source of losses. exchange gains and minimum capital requirements. Unied States * relatively stable policy * easier rules (RAP) for S&Ls * FSLJC replaced * yes * yes * yes, and * yes 1981-91 regime already in place dropped; * FIDICIA mandated relatively effective * FIDICIA included carrots supervisory actions and sticks for banks, with 10%/ the minimum capital ratio for full banking powers. ~~~.. .... .. a......... .............R. Estonia * monetary policy continues * yes, regulation was * small agency, * all banks * no * yes, NEB set up * yes 1992-94 to be governed by currency strengthened (more detailed personnel still being required to be department which board affangenent and fiscal reporting and stricter prudential trained externally audited just dealt with loan policy remains tight. requirements for banks) and * issue of political at year-end. recovery. accounting standards were independence and gradually moved towards capacity. intemational standards. Finland * fiscal restructuring aimed * yes, implementation of BIS * yes, substantial * yes * this was * yes * yes 1991-93 at cuffing budget deficit; capital adequacy standards strengthening of not a condition * continuation of floating of combined with a significant enforcement capacity of for injection of marka that was begun in tightening of maximum risk supervisory authority. govemment's 1992. exposure limits. funds into private banks; Table 5: Characterization of Restructuring Exercises 44 Hungpry * large macroeconomic * no substantial improvements. * yes * NA * no * flawed * no 1990s disequilibria remain; main bankruptcy laws. causes of deficit are government's failure to reduce its role in resource allocation and to streamline social programs; costs of bank bailouts are straining budget; * overvalued exchange rate. latvima * fiscal reform aimed at * tighter limits on connected * central bank given * yes: external * yes * yes, though * yes 1994- tighter policy. lending, stiffer licensing. enhanced enforcement audits by major success not clear powers, significant TA firms required, and must be published Poland * governments made * tightening of accounting * some progress made * yes, for * some * yes; in order to * yes and twinning 1992-94 attempts to bring public sector standards by imposing uniform towards a more effective Treasury owned evidence qualify for with foreign expert deficits under control; public standards for provisioning regime of bank banks. support this recapitalization was arranged. sector deficit shrank between against loan losses. supervision. change. banks had to take 1992-94 but widened again actions against with large SOEs continuing to delinquent generate losses and widening borrowers. external balance. * change to crawling peg in exchange rate policy; Spain * more stable in run-up to * yes * improvement in * NA * NA * NA * yes 1977-1985 EMS membership. information disclosure; * design and imple- mentation of early warning system. Table 5: Characterization of Restructuring Exercises 45 Turkey * government reregulated * yes, but regulations did not * auditing techniques * NA a no; * NA . yes 1982-85 interest rates; contain loan exposure limit to were improved, but still * banks * in general, macro policies single borrowers and groups; too few auditors. continued to pursued by government other exposure limits were provide loans resulted in poor macro-setting, wrought with exemptions. to SOEs. characterized by high public sector deficits, large foreign debt service payments, high inflation and high real interest rates. Sources: World Bank Financial Sector Reviews and Country Economic Memoranda, interviews with Bank Financial Sector Specialists, and: Sheng, 1995; World Bank, 1990, p.53; IMF, 1995; Baer/Klingebiel, 1994; Vittas, 1992; V. Sundararajan, V. Thomas, J.T. Balino, 1991; The Banker, 1995; Jorge Marshall & K. Schmidt-Hebbel, 1994; Rodriguez, 1994; World Bank, 1989; Felipe Morris/ Mark Dorfinan/ Jose Pedro Ortiz & Maria Claudio Franco, 1990; Blass and Grossman, 1995; Fleming and Talley, 1996; The Economist, 1995-96; Financial Times, 1995; Boris, Long, and Noel, 1994. Table 6: Analysis of Crisis Countries 46 (increasing= 1) (between 0-2. 5% 1) (-5 to 10%= 1) (yes=0, no= 1) BENIN 1988-90 increased in early 1990s 1 0 1 1 3 CAMEROON 1987- recovered from 1987 dip, but fell 0 0 1 ongoing I again in 1992-93 CAR 1980s & 1991- slowly dips during the 1980s, 0 0 0 0 0 increased in 1993 CHAD 1980s & 1990s has decreased ever since 1987 0 1 0 0 1 CONGO 1980s & 1991- peaked from 1986-88 and 1992, 0 0 1 0 1 now falling from these marks COTE D'IVOIRE 1988-91 decreased in 1989 fairly steady 0 1 0 1 2 ever since ERII-REA 1993 NA I I GHANA 1982-89 decreased from late 1970s to 0 0 1 0 1 1984, increased from 1985-89 fell again in 1990, increased in 1992, slight drop in 1993 GUINEA 1985, 1994-95 fairly steady 0 0 0 0 0 KENYA 1985-89, 1992- increased in 1990s 1 0 0 0 1 95 MADAGASCAR 1988 dipped from 1984-88, increased I 1 0 0 2 since then MAURITANIA 1984, 1988-93 steady, slight increase I 0 1 0 2 MOZAMBIQUE 1987- falling from mid-I980sto early 0 1 0 ongoing I 1990s NIGERIA 1990s decreased during the 1980s, I 0 0 ongoing I increasing slightly since 1990 SENEGAL 1988-91 gradually falling since late 1970s, 0 0 1 1 2 early 1980s TANZANIA 1987, 1995 increasing since 1989 1 0 0 0 1 TOGO 1993- steady during early 1980s, falling 0 1 ongoing I since 1986 UGANDA 1994 increased from 1992 to 1993, lack 0 1 1 ongoing 2 data ZAIRE 1991-92 increased during 1990s 1 0 NA 1 2 BULGARIA - increased in 1980s, but decreased 0 0 ongoing 0 in early 1990s ESTONIA 1992 decreasing 0 1 0 ongoing I HUNGARY 1991-95 dipped from 1988-90, increased I I I ongoing 3 and steady since then LATVIA 1995 increased in 1993-94 1 0 1 ongoing 2 POLAND 1990s increased sharply in 1989, then 1 0 1 ongoing 2 fell sharply in 1990- fairly steady, increasing since ROMANIA 1990s peaked in 1990, falling since then 0 1 0 1 2 RUSSIA 1995 Falling from 1991-94 0 0 0 ongoing 0 SLOVENIA 1990s increasing from 1992-95 1 0 ongoing I . . . . . . . . . BANGIADESH late 1980s- increased throughout the 1980s I 0 1 0 2 eariv 90s IND[A 1994-95 increasing I I 0 ongoing 2 INDONESIA 1994 increasing I I 0 ongoing 2 MALAYSIA 1985-88 increased in early 1990s I I I 1 4 NEI'AL 1988 increasing 1 1 1 0 3 Table 6: Analysis of Crisis Countries 47 (increasing = 1) (between 0-2.5% 1) (-5 to 10% = 1) (yes = 0, no 1) PHILIPPINES 1981-87 increasing since 1986 1 0 1 1 3 SINGAPORE 1982 increasing since late 1970s, but 0 1 1 1 3 fell in 1993 SRI LANKA 1989-93 steady, increasing trend for the I I I 0 3 last couple of years. TAIWAN, 1983-84 increasing 1 1 1 1 4 CHINA THAILAND 1983-87 increasing since late 1970s 1 0 1 I 3 AUSTRALIA 1989-90 increases in late 1980s 1 I I 1 4 FINLAND 1991 increased during the 1980s. 0 ( I 1 2 plateau from 1991-93. fell in 1994 FRANCE 1994-95 dips in early 1990s 0 0 1 0 1 GERMANY late 1970s. steady, increases in early 1990s I I I 1 4 1989 JAPAN 1990s dipped in 1991, increasing since 1 0 1 ongoing 2 then NEW ZEALAND 1987-90 increasing since mid 1980s I 0 1 1 3 NORWAY 1987-89 steady, slight decrease from 1992- 0 0 1 1 2 94 S13AIN 1977-85. 1994 steady 0 1 1 0 2 SWEDEN 1991- gradually falling from early 1980s 0 0 1 ongoing I l!K 1974-76 increases in late 1980s I 1 1 1 4 lUSA 1984-91 steady. or increasing 1 I I 1 4 Lat-: America . ARGENTINA 1980-82. 1989- falling, then rising, 0 1 1 0 2 90. 1995 BOLIVIA 1986-87 increased strongly in early 1990s I 0 1 0 2 BRAZIL 1994-95 increased in 1980s, recovered I 0 0 ongoing strongly from dip in 1990 CHILE 1976, 1981-83 increased between 1981 and I I I 1 4 1982, fairly steady ever since COLOMBIA 1982-87 fairly steady, increasing slightly I I I 0 3 COSTA RICA several decreased during the 1980s from a 0 0 1 0 1 instances peak in 1981, plateau from 1988- 91 has been falling since ECUADOR early 1980s has been falling since 1988 0 0 1 0 1 MEXICO 1981-91. 1994 dipped sharply in 1988, increased 1 0 1 0 2 since then l'ARAGUAY 1995 dipped in 1988, increasing since I 0 I 0 2 then URUGUAY 1981-84 falling 0 1 0 1 2 VENEZUELA 1980, 1994-95 decreasing from early-mid 1980s 0 0 0 ongoing 0 Middle & NurdtAftk~~~~~~~~ (MM4 .... ............. EGYPT early 1980s, dropped in 1991. but steady since 0 1 1 0 2 1990-91 then KUWAIT 1980s dipped in 1992, increased in I I I 0 3 1993-94 MOROCCO early 1980s increased in late 1980s, early I I I 0 3 1990s TURKEY 1982-85, 1994 mixed, increased from 1993 to I 1 0 0 1994 Table 7: Evaluating the Outcome of the Restructuring Exercises 48 '"M , . .. .. .... ..... ........ ... , , ... ... , , , g ..... , ,,, , , ., ^ . ;.. Benin 21.0 202 286 788% (1988) -53.5 (1991) 3.74%(1992) . no 1988-90 [-9.0 (1991)1 7.61 %(1993) C8be 30.9 27.9 28.6 12.2%(1992) - 14.9%/(1992) negative in * no * questionable: despite favorable d'lvoire 6.2% (1994) -8% (1993) 1994 and 1995 macro-environment, banks hesitant to 1988-91 -29% (1994) lend because of still deficient legal - 8.7% (Sep. 199S) environment that hampers contract [-0.6%(1993), 17"!. enforcement. (1994), and 6.5% (1995)] Ghana 24.5 13.4 16.9 72.5% 28.5% 4.2%(90-93) - 1.38% * no * no: lack of real sector 1982-89 (1989 -6of seven (1993-6of seven [4.4%l (1994) restructuring, poor macro- restructured banks) restructured banks) environment. Guinea 8.9 9.6 80% 20% 26% (87-90) 5.5% * 1993/4 X no: due to failure of government 1985 [4.6%] (1992) to improve accounting, regulatory framework as well as enforcement by supervisory authority. Guinea 10.4 9.2 20% 17% (1994) 21% (1994) 13.3% * crisis is still . questionable: since government 1993-94 (1992) 24% (June 1995) [4.0%l (1994) being resolved, did not address non-performing loan problems of banks that were not restructured and did not improve regulatory and accounting framework as well as enforcement thereof significantly; finally, macro- imbalances remain. Kenya 30.4 26.7 38.6 1.8%(1991) -1.6% * yes, in * no 1985-89 [1.4%1 (1990) 1992 and 1995 16.4% (1990) -28.0% * no: recurrent problems, unclear Madagascar 17 15 18 [3.1%] (1994) incentives 1988 Nigeria 33.4 19.3 23.3 77%(1991) - 6.5% (1991) -19.8% * crisis is still * inaction towards insolvent banks 1990s 65%(1992) - 5.9% (1992) (1993) being resolved. exacerbates problems. Table 7: Evaluating the Outcome of the Restructuring Exercises 49 Senegal 28.7 23.2 22.1 50% (1988) 5.5% 7.8% * no . unclear; 1988-91 (1992) (1992) R-., ,5- "2"'~~~ ~ ~ ~~~~~~~~~~~~~~ . . ., ,,,... R Indonesia 43.3 45.8 14.2% (all banks) 6.5% * still * some actions have been taken on 1992-94 20%o (public banks) (1995) resolving public banks. 1993 problems. Malaysia 75.8 66.2 89.1 27% (1987) 10.2 - 14.6%(1989-92) 2.7 . no * yes 198!-88 32.9 (1988) (1994) [8.9 %] (1991) Philippines 33.7 26.7 45.8 23% 3.9% 5.7 (88-91); 12% (88- 1.36 * unclear: rapid growth of real 1981487 (1985 - commercial (1994 -commercial 94); (1994) credit in recent yeas; shortcomings banks) banks) [3.9%,. 3.2] in regulatory and accounting framework not completely addressed; not clear whether supervisory enforcement problems resolved. Thailand 54.4 59.1 78.6 22.7%(88-91) 6% * no, buta 19834L7 [11.3%] (1990) number of banks continue to require close central bank attention. ...................... . .. . .. . .. .. . .. . ...... ....,. .. ..... .... . ...... .....0....... . . .. . ........... : '; v'. i-. ', :v ............ ......................... .. ' R .. ... ............... RR Argentina 35.1 21.0 26.2 16.9%o 27% -15.5% (83-86) 6.6% (1988) * yes, * no: macro-imbalances were not 1980-82 (1983) (1988) 6.8% (83-89) 445%(1989) between 1980- resolved; number of shortcomings in [1.6% ,0.1%l 1988: 215 regulatory and accounting framework banks were were not dealt with. closed; * crisis of 89- 90. Table 7: Evaluating the Outcome of the Restructuring Exercises 50 Argentina 25.1 11.5 12.8 27% 4.2% (1990-93) 3.7% (1994) * yes (1995) * questionable: since Argentine 1989-90 (1989) [5.9%] . public government did only take gradual sector banks action on distressed public banks; problems were although fiscal reform was successful not resolved. on federal level, overall public expenditures have not fallen; and public provincial banks fragile. DrazAl 79.4 < 1% (private banks) 20 - 25% (1994) * crisis is still * large provincial bank problems. 1994 14.8% (public banks) 15.7%(1994) being resolved. Chile 39.1 37.8 39.0 4.1% 1% 1.6%(84-87) 3.3% * no * yes 1981-83 (1982) (1994) 3.5 %(84-93) (1994) [4. 1%/, 5.9%] Colombia 21.9 18.0 27.0 9.6%(1983) 2.1 (1991) 7.9%h(91.93) 4.5% a no a questionable: governmentdid 198247 14.7°/ (1985) [3.7%] (1994) not manage to cut large budget deficit; * accounting system not sufficiently transparent to detect banking problems early on; and new financial companies not under central bank purview; real estate lending boom. Uruguay 56.3 42.2 61.2 30.4% (1982) 25.2%(1987) 4.1% (1985-88) - 5.4% a no * questionable 1981-84 - .90/0(1985-93) [4.6%/, 3.7%] Venezuela 33.9 27.8 31.7 N/A -38% (1994) -13.5% * crisis is still 1994-95 [-3.7] (1994) being. resolved. Table 7: Evaluating the Outcome of the Restructuring Exercises 51 1'0,0 MMc.MIN ...4.......... A d ......... .... 0 K., ***~~~~~4~~~440,.4,,, ~ ~ ~~~~~~~~~~ 4,,.. '44......... United 62.4 60.9 63.3- 4.1% 2.0% (1992-94) None yc .s;mainstructural weakness States 68.3 [3.4%] significant (limitation on national branching) 1981-91 being corrected; * structured, early intervention limits scope for regulatory delay ~~~.. 4 ~~~~~ . .0 . 4 o U ..044.. 4 ..... 400 .4 4 4.......... ..... .................... '...... ... ......... 44. ' 4 44 . . . : * 4.4 ...:..i::4 ..:4..94; 4 -4-4..4. 44... 444 ~~~~"M ........ ....,'... . ................4::::.:: 444 ~44.... ..4 ............ .. ................ .. . a.. . ........4,4 , 4 4............ * 44...... . Estonia 15.0 10.0 6.1% (1992) 25.1%(1993) -24.5% crisisyisstill 1992-94 4% (1994) b10.9%r(I994) (1994) being resolved. Finlnd 55 6. 1 59 10..%(1992) 6.7% (1994) -10.6% (1994) 2.2% * no suncle, banks still relatively 1991-93 5.2%(1993) [4.0/o (1994)] (1995) weak. Hungary 53.7 3.2%(1993) 1.2% * crisis is still a no: for recapitalizations did not 1990s 0.1% (1994) (1994) being resolved. address bad loan problems at banks, [-2.3% (1993)1 or stop bank lending to borrowers in [2.6% (1994)1 default; also shortcomings in the regulatory and accounting framework and resp. enforcement were not addressed. Latvia 36. n.a. n.a. n.a. too soon * too soon * too soon * not yet * promising changes on supervision, 1994- but too soon to tell. One of the better TA programs on bank supervision in the FSU. Poland 32.2 35.9 15.5%(1991) - 2.3% (1993) -2.00/o * still 1992-94 28.8% (1992) -5.5% (1994) (1994) resolving 25.7% (1994) crisis. Spain 80.0 66.0 82.0 10.5% (86-89) 1.9 * collapse of 1977-85 5.4%(86-94) (1994) Banesto in [4.7%,2.9%1 1994. Table 7: Evaluating the Outcome of the Restructuring Exercises 52 ~~~ + ~~~~~~~~~:n,x.x..'c-++~ ~~~~~~~~~~~~~~.. ...... Turkey 30.2 23.9 29.5 6%(net of loss 1.24% (net of loss 4 9% (1989-89) -6.0%(1989) * yes(1994) * no: bankscontinued to lend to 1982-85 provisions) provisions) .7.9% (1990) borrowers in default because of (1986) (1990) interconnections; regulatory and accounting frameworks for banks continued to be deficient; macro- imbalances remain problematic. Sources: World Bank Financial Sector Reviews and Country Economic Memoranda, interviews with Bank Financial Sector Specialists, and: Sheng, 1995; World Bank, 1990, p.53; IMF, 1995; Baer/Klingebiel, 1994; Vittas, 1992: V. Sundararajan, V. Thomas, I.T. Balino, 1991; The Banker, 1995; Jorge Marshall & K. Schmidt-Hebbel, 1994; Rodriguez, 1994; World Bank, 1989; Felipe Morris/ Mark Dorfman/ Jose Pedro Ortiz & Maria Claudio Franco, 1990; Blass and Grossman, 1995; Fleming and Talley, 1996; The Economist, 1995-96; Financial Times, 1995; Boris, Long, and Noel, 1994. Policy Research Working Paper Series Contact Title Author Date for paper WPS1599 Economic Implications for Turkey Glenn W. Harrison May 1996 M. Patena of a Customs Union with the Thomas F. Rutherford 39515 European Union David G. Tarr WPS1600 Is Commodity-Dependence Nanae Yabuki May 1996 G. llogon Pessimism Justified? Critical Takamasa Akiyama 33732 Factors and Government Policies that Characterize Dynamic Commodity Sectors WPS1601 The Domestic Benefits of Tropical Kenneth M. Chomitz May 1996 PRDEI Forests: A Critical Review Kanta Kumari 80513 Emphasizing Hydrological Functions WPS1602 Program-Based Pollution Control Shakeb Afsah May 1996 A. Williams Management: The Indonesian Benoit Laplante 37176 PROKASIH Program Nabiel Makarim WPS1603 Infrastructure Bottlenecks, Private Alex Anas May 1996 S. Ward Provision, and Industrial Productivity: Kyu Sik Lee 31707 A Study of Indonesian and Thai Michael Murray Cities WPS1604 Costs of Infrastructure Deficiencies Kyu Sik Lee May 1996 S. Ward in Manufacturing in Indonesia, Alex Anas 31707 Nigeria, and Thailand Gi-Taik Oh WPS1605 Why Manufacturing Firms Produce Kyu Sik Lee May 1996 S. Ward Some Electricity Internally Alex Anas 31707 Satyendra Verma Michael Murray WPS1606 The Benefits of Alternative Power Alex Anas May 1996 S. Ward Tariffs for Nigeria and Indonesia Kyu Sik Lee 31707 WPS1607 Population Aging and Pension F. Desmond McCarthy May 1996 M. Divino Systems: Reform Options for China Kangbin Zheng 33739 WPS1608 Fiscal Decentralization, Public Tao Zhang May 1996 C. Bernardo Spending, and Economic Growth Heng-fu Zou 37699 in China WPS1609 The Public Sector in the Caribbean: Vinaya Swaroop May 1996 C. Bernardo Issues and Reform Options 31148 WPS1610 Foreign Aid's Impact on Public Tarhan Feyzioglu May 1996 C. Bernardo Spending Vinaya Swaroop 31148 Min Zhu Policy Research Working Paper Series Contact Title Author Date for paper WPS1611 Economic Analysis for Heakth Jeffrey S. Hammer May 1996 C. Bernardo Prc,ects 37699 WPS16 i2 Stoc.k Market and Irvestment: The Cherian Samuel May 1996 C. Samuel Signaiing Pole of the Market 30802 WPS 1613 Does Public Capital Crown Out Luis Serven May 1996 E. Khine PF'vate ' apital? Evidience from India 37471 WPS?614 Growth. Globalization, and Gains Thomas W. Hertel May 1996 A. Kitson-Walters from the UNTuIlay Pound Christian F. Bach 323947 Betina Dimaranan Will Martin WPS-1615 !ssues in Measuring and Modeling Martin Ravallion June 1996 P. Sader Poverty 33902 WPS1616 Transient Ploverty in Rural China Jyotsna Jalan June 1996 P. Sader Martin Ravallion 33902 WNPS1617 Why is unemployr:ient Low in the Simon Commander June 1996 L. Alsegaf Formier Sov,et Union? Enterprise Andrei Tolstopiatenko 36442 Restructuring and 'the Structure of Comnei-sation WPS1618 Analytical Aspects of the Debt Stijn Claessens June 1996 R. Velasquez Problerns of Aeavfly Indebted Enrica Detragiache 39290 Poor Countries Ravi Kanbur Peter Wickham WPS1619 Capita Flowvs to L atin Amer ica: Is Sara Calvo June 1996 M. Gomez There Evidence (i Contagion Effects? Carmen Reinhart 38451 WPS162GF Brark insolvencies Cross-country Gerard Caprio, Jr. July 1996 B. Moore Exrjniw1nce Daniefa Klingebiel 38526