Credit provision should then be able to continue in a smooth fashion in future downturns, mitigating, rather than exacerbating, asymmetric shocks. Greater efforts should be made to resolve the overhang of NPLs. I see a number of avenues that are worth exploring. Banks themselves should make efforts to fully provision the true expected loss from NPLs.
Countries where NPLs are higher are often those where weak institutions make it difficult for banks to seek insolvencies and seize collateral from non-payers. Structural reforms to boost judicial efficiency will aid banks in the process of NPL recovery.