Bank Recovery, Resolution of Non-performing Loans, and Stress Testing
Slow recovery of the financial and banking sectors is a concern that many countries in South East Europe are striving to address while working to ensure financial stability and stimulate a growth-supportive economic environment. In determining the extent of an economy’s resilience and the stability of its financial sector, it is crucial to test the limits of the latter in the face of shocks. Stress-testing is already a recognized practice in the conduct of regular bank supervision which has proved to be a useful instrument in identifying and addressing potential vulnerabilities. If a crisis does unfold, proper recovery planning and effective instruments to intervene in a vulnerable bank’s operations may help the latter overcome financial distress and save it from failing. To diminish the bank’s risk exposure, shore up its impaired balance sheet and thereby strengthen the credit channel, an effective resolution mechanism needs to be put in place for non-performing loans. This frees up the banking sector to play its critical role in providing funding for a dynamic private sector and support sustainable long term growth.
The workshop provided a platform to share experience in conducting stress-tests within the framework of banking supervisory practices, to exchange thoughts on adequate planning and modalities for bank recovery, and to discuss the challenges faced in accelerating the resolution of non-performing loans.
What was it about
During the workshop participants touched upon:
1. Bank recovery planning and the nature of supervisory dialogue
- Introduction of recovery planning and assessment of recovery plans
- Main elements of recovery plans
- Supervisory assessment
- Supervisory response and measures
2. Policy challenges in the resolution of non-performing loans and possible solutions, in particular:
- The economics of debt and deleveraging: the experience in CEE
- NPLs: impact on the banks and the financial system
- NPLs: definition and supervision
- NPL resolution and debt restructuring: strategies, institutions and instruments
3. Conduct of regular supervisory activities with a focus on practical challenges in the design and application of stress testing approaches:
- Stress testing, general overview
- Different approaches to stress tests
- Current practices of stress testing in Slovenia
- EU (EBA and ECB) perspective of stress tests
Who was it for
The workshop has been designed for bank inspectors and senior employees from central banks supervision departments, as well as the representatives of financial supervisory agencies.
Faculty
Alexander Lehmann, European Bank for Reconstruction and Development
Alexander is a Lead Economist with the EBRD and heads the department’s work on the Central Europe and Baltic region from the Bank’s regional center in Warsaw. In this capacity he advises the Bank’s management and banking staff on key investment projects, country strategies, and on a broad range of EU-related issues, including the emerging framework for financial regulation and supervision. In other roles he was head of country risk analysis and country economist for Russia, the EBRD’s largest country of operation. Previously, Alex Lehmann was on the staff of the International Monetary Fund in Washington, acted as consultant to the World Bank and the World Trade Organization and worked in research and teaching posts at the Royal Institute of International Affairs (Chatham House) and the London School of Economics. His research interests include international finance, financial development and regulation, international trade and foreign direct investment. He holds graduate degrees in economics from the LSE and the College of Europe, and a doctorate in economics from Oxford University.
Juan Ortiz, FinSAC (World Bank Group)
Juan Ortiz is Senior Financial Sector Specialist of the World Bank. His role consists of providing technical assistance in the area of prudential regulation and supervision to supervisory agencies and central banks in the Eastern and Central European region. Before joining the World Bank in 2015, Juan was Advisor in the Directorate General of Supervision of Banco de España, where he was heavily involved in the management of the Financial Sector Programme for Spain during 2012 and 2013. Prior to that he worked at Banco de España in a number of roles in banking supervisor since 1989, and as an expert in banking supervision at the World Bank Latin American Region (1999-2004). He graduated in law from the Universidad Complutense de Madrid.
Damjana Iglič, Bank of Slovenia
Damjana graduated at University of Ljubljana in 1992, when she also joined the Banking Supervision Department at the Bank of Slovenia. She is Director of Systemic Supervision and Prudential Regulation Department, responsible also for conducting bottom-up stress tests.
Karmen Kunčič, Bank of Slovenia
Karmen has been working in banking supervision since 2002, where she started on off-site supervision of several banks. Afterwards she is working on off-site supervision of the banking system, which involves conducting stress tests. Now she is Head of Reporting and accounting department.
Vasja Sivec, Bank of Slovenia
Vasja holds a Ph.D. from the European University Institute, where he graduated in 2015. He is a researcher at the Bank of Slovenia, working on top-down stress tests and macro-prudential policy implementation.
Partners
This learning initiative was supported by:
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