Banks that are saddled with a large number of nonperforming loans from another country, either private or public debt, will have a need to work out those loans, and continue to support those borrowers rather than engage in new lending, either domestic or cross-border.
Similarly, such banks are unlikely to be as efficient as they otherwise would be in transmitting the monetary policy of their home country central bank into their home country macroeconomy. So it is clear that an insolvent banking system is bad for a local, and indeed, the global economy.