BROOKLYN,NY– A working group report says better banking policies are needed given the serious challenges financial systems will face from the economic impacts of the COVID-19 health crisis in Latin America and the Caribbean.
The report, “Sound Banks for Healthy Economies: Challenges for Policymakers in Latin America and the Caribbean in times of Coronavirus,” co-chaired by the ECGD) and the Inter-American Development Bank (IDB, outlines a series of challenges and details recommendations for regional policymakers, also relevant for other emerging markets worldwide.
“Families and firms alike are struggling during the ongoing pandemic, and they will need financing to both weather the crisis and come out on the other side with enough strength to survive and then build back,” said Liliana Rojas-Suarez, director of the Latin America Initiative at CGD and co-author of the report, on Wednesday.
“There is a strong sense that the longer COVID-19 rages on, the strain on financial systems will worsen,” she warned. “This is where averting systemic banking crises throughout the region becomes critical,”
Andrew Powell, principal advisor in the IDB’s research department and co-author of the report, said that “many countries have allowed banks to restructure loans with no additional required provisioning and have implemented loan guarantee schemes.
“While these policies have been constructive, they carry risks and alternative instruments should be considered,” he said.
According to the Washington-based IDB, some of the report’s other findings include the importance of maintaining central bank credibility and balance sheet strength, focusing on instruments to deal with solvency as well as liquidity problems, and harnessing new transfer programs to boost financial inclusion.
An accompanying blog provides more information on some of these options, the international financial institution said.
The report says that Latin America and the Caribbean have a difficult path to navigate during and after the COVID-19 crisis.
“Good policies, as identified through the discussions of the expert working group that formed the basis of this report, will help minimize the economic hardship and allow banks to play a constructive, comprehensive role in the pandemic recovery phase throughout the region,” the IDB said.
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