Challenges to Credit Risk Management in the Context of Growing Macroeconomic Instability in the Baltic States Caused by COVID-19
Digital Transformation, Strategic Resilience, Cyber Security and Risk Management
ISBN: 978-1-80455-254-4, eISBN: 978-1-80455-253-7
Publication date: 28 September 2023
Abstract
The COVID-19 pandemic deteriorated the economic situation and raised the issue of the quality of banks’ assets and, in particular, the growth of non-performing loans (NPLs). The study approaches a topical subject that is of interest to banks and society at large, as credit availability is likely to be reduced. Over the last 10 years, the Baltic countries’ banking sector has significantly improved its risk management policies and practices, increased capital ratios on its balance sheets, and created risk reserves. The current chapter examines the factors affecting NPLs in the Baltic States based on advanced econometric modelling applied to data extracted from the International Monetary Fund (IMF) and Eurostat. The study results show that credit risk management in the Baltic States has significantly improved compared to the period before the global financial crisis (GFC), the capitalisation of credit institutions is one of the highest in the European Union (EU), and banks are liquid and profitable. Lending recovered from the downturn in the first phase of the pandemic, and credit institutions have taken advantage of the European Central Bank’s (ECB) long-term funding programme ITRMO III to improve the liquidity outlook. Although the credit quality of commercial banks has not deteriorated, as the exposures of credit institutions in the most affected sectors are insignificant and governments have provided fiscal support to businesses and households, some challenges remain. The increase in credit risk is expected due to rising production prices as well as the rebuilding of disrupted supply chains. The findings allow conclusions to be drawn on the necessary actions to mitigate the credit risk of the banking sector.
Keywords
Citation
Spilbergs, A., Norena-Chavez, D., Thalassinos, E., Noja, G.G. and Cristea, M. (2023), "Challenges to Credit Risk Management in the Context of Growing Macroeconomic Instability in the Baltic States Caused by COVID-19", Grima, S., Thalassinos, E., Cristea, M., Kadłubek, M., Maditinos, D. and Peiseniece, L. (Ed.) Digital Transformation, Strategic Resilience, Cyber Security and Risk Management (Contemporary Studies in Economic and Financial Analysis, Vol. 111A), Emerald Publishing Limited, Leeds, pp. 83-104. https://doi.org/10.1108/S1569-37592023000111A006
Publisher
:Emerald Publishing Limited
Copyright © 2023 Aivars Spilbergs, Diego Norena-Chavez, Eleftherios Thalassinos, Graţiela Georgiana Noja and Mirela Cristea