Economic policy responses to the COVID-19 pandemic and growth of nonperforming loans

In this paper, we investigate the relationship between various economic policy responses to the COVID-19 pandemic (liquidity support, prudential policies, borrower support, asset purchase, and policy rate decisions) and the growth of nonperforming loans (NPLs) in 2020 across 47 economies. Controlling for other relevant determinants of NPLs, our regression analyses show that economies in which policymakers have used prudential and borrower support measures reported significantly slower growth of aggregate NPLs. The prudential measures also confirmed a more robust relationship with NPL reductions compared with borrower support measures. Added to this, non-mortgage consumer loans are found to be more sensitive than mortgage loans to economic policy responses.