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How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans (English)

In modern economies, banks are typically the primary financial intermediaries and are fundamental to a stable financial system, one that is capable of efficiently allocating resources, assessing and managing financial risks, maintaining employment levels close to the economy’s natural rate, and eliminating price movements of real or financial assets that will affect monetary stability or employment levels. When banks are not able to recover the money lent, the financial system and the economy at large may suffer. Non-performing loans (NPLs) erode the profitability and can threaten the solvency of banks, and when a sufficiently large volume of loans is affected, they can potentially threaten financial sector stability. Efficient legal regimes that promote effective insolvency and creditor/debtor rights (ICR) are important tools that facilitate debt recovery, reduce the cost of credit, increase access to finance and, as a result, help improve NPL levels. This policy note examines the relationship between effective ICR systems and NPL levels.


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    Menezes,Antonia Preciosa, Muro,Sergio Ariel, Pereira,Clara Martins, Uttamchandani,Mahesh

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    The World Region,

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    How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans

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    Debt Resolution and Business Exit; impact of debt; small and medium size enterprise; nonperforming loan; Insolvency; role of bank; enforcement of creditor right; npl resolution; law and economics; asset management companies; financial sector stability; cost of credit; protection of creditor; asset management company; access to collateral; promotion of entrepreneurship; availability of credit; dealing with bank; supervision and guidance; public sector performance; global financial crisis; opportunities for investor; journal of finance; access to finance; impact of regulation; private sector debt; banks' balance sheet; privileges and immunity; files for bankruptcy; alternative enforcement mechanism; global financial stability; insolvency framework; systemic risk; legal right; economic recovery; loan repayment; legal reform; insolvency reform; financial system; significant threat; banking sector; credit market; empirical literature; private workout; economic research; institutional environment; natural experiment; real gdp; policy option; debtor right; complementary tools; banking crisis; macroeconomic performance; liquidity problem; corporate finance; liability side; secured creditor; default rate; financial instability; insolvency court; credit obligation; judicial enforcement; bank loss; insolvent entity; research bulletin; corporate insolvency; individual insolvency; nonperforming asset; crisis situation; Political Economy; court intervention; enforcement action; commercial purpose; asset reconstruction; bank lending; credit supply; previous crisis; negative effect; medium-sized companies; enforcement right; asset quality; legal challenge; debt contract; real sector; contract enforcement; legal environment; risky lending; negative relationship; legal process; property right; national insolvency; best practice; international consensus; enterprise survey; loan data; Loan delinquencies; insolvency system; commercial bank; movable asset; intangible asset; bilateral debt; enforcement process; law school; loan default; loan portfolio; Doing Business Reports; insolvency proceeding; formal proceeding; expected loss; quantitative analysis; bankruptcy reform; increased returns; debt structure; systemic crisis; empirical study; positive outcome; sample period; corporate bankruptcy; credit misallocation; court debt; literature review; allocating risk; delinquent debtor; investment growth; discussion papers; idiosyncratic factors; copyright owner; mortgage risk; legal publication; legal institution; cumulative loss; insolvency regime; formal insolvency; Economic Policy; legal mechanism; index base; debt restructuring; transparent manner; asset protection; legal regime; public policy; particular country; insolvency law; weak demand; regulatory capital; sole responsibility; original work; corporate risk; public official; international standard; modern economy; Position Note; bank profits; private debt; empirical investigation; bank failure; Bankruptcy Law; household debt; distressed asset; short-term loan; debt intermediary; mortgage provider; positive impact; financial service; institutional change; outstanding debt; financial risk; debt sustainability; natural rate; price movement; financial asset; Monetary Stability; unemployment rate



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Menezes,Antonia Preciosa Muro,Sergio Ariel Pereira,Clara Martins Uttamchandani,Mahesh

How Insolvency and Creditor-Debtor Regimes Can Help Address Nonperforming Loans (English). Washington, D.C. : World Bank Group.