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Business and Economics > Finance: General

You are looking at 1 - 10 of 201 items for :

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Cover Departmental Papers
Corporate Sector Vulnerabilities and High Levels of Interest Rates
Bruno Albuquerque
,
Nassira Abbas
,
José M. Garrido
,
Deepali Gautam
,
Benjamin Mosk
,
Thomas Piontek
,
Anjum Rosha
,
Thierry Tressel
, and
Aki Yokoyama
This paper provides a comprehensive overview of corporate sector vulnerabilities that have emerged post-pandemic. The main focus in on the financial stability implications from corporate sector vulnerabilities in a new environment of high interest rates. Although several central banks have recently started cutting interest rates, the expectation is that high interest rates, above pre-pandemic levels, are here to stay. It is then especially important to design and deploy appropriate policies that may prevent and mitigate risks from the corporate sector. The main findings of the paper are as follows. First, the paper finds that interest rate increases may transmit more strongly to the real economy in the current environment since the global share of financially distressed firms has been trending upwards, especially in emerging markets (EMs). Moreover, the lagged effects of past monetary policy tightening may have adverse effects on firms’ capacity to invest. Second, an adverse macroeconomic scenario of negative demand shocks coupled with higher interest rates would lead to a fast and large increase in corporate defaults. Financial stability risks would increase materially, especially for EMs and less-developed banking systems, as bank capital buffers would fall considerably in this scenario. Third, the increasing role of nonbanks in corporate credit intermediation in advanced economies may amplify overall financial stability risks. This paper closes some of the data gaps and shows that since the GFC, nonbanks have been increasing their exposure to riskier firms and to the less productive segment of the economy, including zombie firms and nontradable firms. The migration of credit to the unregulated sector raises concerns about the propagation of risks to the rest of the financial system from a potential corporate default cycle. It is paramount to continue closing data gaps in this sector, while extending the regulatory perimeter to nonbanks to improve the overall resilience of the financial sector. Finally, the paper documents some progress on insolvency and restructuring regimes to deal with corporate distress since the pandemic. Nevertheless, several shortcomings persist that prevent countries from resolving firms quickly in a potential scenario of an intensification of corporate distress.
Keywords:
corporate vulnerabilities; insolvency frameworks; financial stability; monetary policy; nonbanks; corporate stress tests; crisis preparedness indicator; monetary policy shock; IMF Library; nonbank financials; differential effect; nonfinancial corporates default probability; Corporate sector; Solvency; Credit; Business enterprises; COVID-19; Global
Cover IMF Working Papers
Implementing Risk-Based Solvency for Insurers—Lessons from Kenya, Mexico, and South Africa
Peter Windsor
,
Suzette J Vogelsang
,
Christiaan Henning
,
Kerwin Martin
,
Elias Omondi
,
Gerardo Rubio
, and
Jooste Steynberg
International standards and best practice supports the implementation of a risk-based solvency regime in the regulation and supervision of insurers. Several emerging market and developing economies are transitioning to such a solvency regime or planning to do so. This paper discusses Kenya, Mexico, and South Africa’s journey to putting in place a risk-based solvency regime which had several common elements notwithstanding significantly different insurance sectors. The transition was a multi-year project requiring dedicated additional resources; restructuring of the regulator, including redesigning supervisory processes and tools and upgrading information technology systems; and significantly greater coordination between the regulator and the insurance industry.
Keywords:
Insurance; Risk-based Solvency; Risk-based supervision; solvency regime; Penetration rate; RBS project; solvency assessment; RBS implementation; supervision of insurer; Insurance companies; Solvency; Financial statements; Africa; Global
Cover IMF Staff Country Reports
Luxembourg: Financial Sector Assessment Program—Technical Note on Insurance Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
This technical note analyzes the key aspects of the regulatory and supervisory regime for insurance companies in Luxembourg. The analysis is part of the 2024 Financial Sector Assessment Program (FSAP) and based on the regulatory framework in place and the supervisory practices employed as of October 2023. The FSAP reviewed recent developments and the structure of the Luxembourgish insurance sector. The sector is large, well developed, and highly interconnected with other insurance markets through internationally active insurance groups and cross-border business. After having grown substantially in size, it is recommended to further strengthen the Commissariat aux Assurances’s (CAA) independence and its internal governance. The CAA’s staff has roughly doubled since the last FSAP but should be constantly reviewed with further expanding tasks. The authority’s independence could be further strengthened by safeguarding the independence of its Board members and narrowing down in the Insurance Act the reasons on which the CAA’s Directorate could be dismissed. The governance of the CAA would benefit from setting up an internal audit function, and strengthening IT governance as projects are currently conducted largely in-house.
Keywords:
solvency ASSESSMENT; International Monetary Fund Washington, d.c; solvency capital requirement; solvency coverage; G. Macroprudential supervision; Insurance; Insurance companies; Anti-money laundering and combating the financing of terrorism (AML/CFT); Solvency; Financial Sector Assessment Program; Global
Cover Selected Issues Papers
Bulgaria: Fiscal Risks from State-Owned Enterprises
Anh D. M. Nguyen
State-owned enterprises’ (SOEs) economic and financial performance may have important fiscal implications. This study evaluates related fiscal risks in Bulgaria from both aggregate and firm-level perspectives. The low level of state-guaranteed debt of SOEs poses minimal fiscal risk. However, contingent liabilities could be a fiscal concern in the long term due to the low profitability of major SOEs and their inefficient resource allocation. Given their crucial role in the production network, their inefficiencies likely negatively impact the overall economy’s productivity and competitiveness. Additionally, liquidity and solvency risks are evident in several key SOEs. These findings underscore the need for monitoring and improving SOEs’ financial performance.
Keywords:
Bulgaria; State-Owned Enterprises; SOEs; Fiscal Risks; SOEs’ financial performance; solvency risk; risk threshold; return on assets; health check tool; loss-making SOEs; Public enterprises; Contingent liabilities; Energy sector; Solvency; Europe
Cover IMF Working Papers
Monitoring Privately-held Firms' Default Risk in Real Time: A Signal-Knowledge Transfer Learning Model
Jorge A Chan-Lau
,
Ruofei Hu
,
Luca Mungo
,
Ritong Qu
,
Weining Xin
, and
Cheng Zhong
We develop a mixed-frequency, tree-based, gradient-boosting model designed to assess the default risk of privately held firms in real time. The model uses data from publicly-traded companies to construct a probability of default (PD) function. This function integrates high-frequency, market-based, aggregate distress signals with low-frequency, firm-level financial ratios, and macroeconomic indicators. When provided with private firms' financial ratios, the model, which we name signal-knowledge transfer learning model (SKTL), transfers insights gained from 35 thousand publicly-traded firms to more than 4 million private-held ones and performs well as an ordinal measure of privately-held firms' default risk.
Keywords:
Default risk; Corporate sector; Privately-held firm; Gradient boosting; Transfer learning; signal-knowledge transfer learning model; publicly-traded firm; gradient-boosting model; transfers insight; held firm; Financial statements; Debt default; Solvency; Credit risk; Europe; North America; Global; Asia and Pacific
Cover IMF Staff Country Reports
Japan: Financial Sector Assessment Program-Detailed Assessment of Observance on Insurance Core Principles
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses Detailed Assessment of Observance of Insurance Core Principles for the Japan Financial Sector Assessment Program. The Financial Services Agency (FSA) is the integrated regulator of financial services, including insurance but accepting the insurance activities of cooperatives. Areas of observance include licensing requirements, cooperation with other supervisors and anti-money laundering and combating the financing of terrorism. Regulatory material contains extensive requirements for licensing of insurers and the FSA works closely with applicants to assess whether they meet requirements, even if final decisions on licensing are taken by a minister. The assessment identified significant gaps in the current framework of regulation and supervision. The assessment found that, partly because of resource constraints, the FSA’s approach to insurance supervision is largely reactive. The resolution framework and process of resolution for insurers needs to be carefully reviewed. Finally, there is a need to strengthen institutional arrangements for insurance supervision. As recommended in previous assessments, the FSA’s independence should be bolstered by the delegation of insurer licensing powers currently reserved to a minister.
Keywords:
Japan FSAP; life insurer; General insurance rating Organization of Japan; earthquake insurance take-up; General insurance Association of Japan; Non-life insurance policyholder protection corporation; Insurance companies; Financial stability assessment; Insurance; Anti-money laundering and combating the financing of terrorism (AML/CFT); Solvency; Global
Cover Global Financial Stability Notes
The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath
Tobias Adrian
,
Nassira Abbas
,
Silvia Ramirez
, and
Gonzalo Fernandez Dionis
In March 2023, the US banking sector turmoil sent a shockwave through the global financial system. Silicon Valley Bank (SVB), the 16th largest bank in the country, collapsed in a matter of days, followed by Signature Bank (SBNY) and First Republic Bank (FRB), marking the largest bank failures after Washington Mutual Bank in 2008. Triggered by sizable deposit outflows, this event raised concerns about the soundness of the rest of the US banking sector, in particular, other banks of similar or smaller size with large amounts of uninsured deposits, unrealized losses, and commercial real estate exposures. The March turmoil is a powerful reminder of the challenges posed by the interaction between tighter monetary and financial conditions and the buildup in vulnerabilities—challenges amplified by ineffective interest, liquidity, and credit risk management practices at some banks. This note offers an analysis of the main attributes of the affected banks to assess the extent to which vulnerabilities persist in a weak tail of banks . Furthermore, the note provides a prospective assessment by evaluating the medium-term risks to financial stability posed by this weak tail.
Keywords:
US banking sector; regional banks; bank runs; 2023 banking turmoil; Silicon Valley Bank; Signature Bank; First Republic Bank; bank equity Index; deposit outflow; IMF Library; bank Term funding program; compounds financial conditions; Commercial banks; Distressed institutions; Deposit insurance; Financial sector stability; Liquidity; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing
International Monetary Fund. Monetary and Capital Markets Department
This technical note provides an update on the systemic risk analysis and stress testing in Belgium. The Financial Sector Assessment Program (FSAP) banks solvency stress tests show that the Belgian significant institutions are resilient under the adverse scenario while some heterogeneity exists. The FSAP team also conducted a sensitivity analysis where non-term deposits are converted to term deposits owing to the steep surge in interest rates. The results from the liquidity stress tests show that liquidity levels are comfortable for the system but need to be reinforced for some banks. An additional study examining the interplay between solvency and liquidity risks under stress shows that banks are resilient to shocks that will result in forced liquidation of assets. The interconnectedness analyses show that Belgian domestic and cross-border interconnections are relatively modest. The domestic interbank market reflects low levels of contagion risks for Belgian banks; however, there are a few banks that exhibit a high degree of systemic importance within the interbank system. Cross-border analysis reveals Belgian banks’ strong exposures to non-financial sectors.
Keywords:
net interest income; risk projection; market interconnectedness Results; H. sensitivity analysis; market interconnectedness flowchart; sensitivity analysis result; regressions output; solvency capital requirement; Stress testing; Insurance companies; Solvency stress testing; Solvency; Mutual funds; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Insurance Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
The Financial Sector Assessment Program (FSAP) conducted a focused review of insurance regulation and supervision in Belgium. This technical note (TN) provides an update on the insurance sector and highlights risks and vulnerabilities. It analyzes key aspects of regulatory and supervisory oversight: supervisor; the solvency framework; supervision (micro and macro); changes in control and portfolio transfer, reinsurance; conduct of business and group supervision and supervisory co-operation and co-ordination. Belgium has adopted a twin peaks model of regulatory oversight and supervision. The National Bank of Belgium (NBB) is responsible for prudential supervision at both a micro and macro level whilst the Financial Services and Markets Authority (FSMA) is mandated with conduct of business supervision. The analysis focuses on supervision within the scope of the NBB’s and the FSMA’s mandates. The TN comments on progress in respect of the implementation of recommendations made by the previous FSAP and offers further recommendations to strengthen the regulatory and supervisory regime.
Keywords:
risk assessment framework; pre-emptive conduct supervision; conduct risk; group supervision; NBB's role; Insurance companies; Insurance; Mortgages; Financial Sector Assessment Program; Solvency; Global
Cover Regional Economic Outlook, Middle East and Central Asia, October 2023
Regional Economic Outlook, Middle East and Central Asia, October 2023
Building Resilience and Fostering Sustainable Growth
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Across the Middle East and Central Asia, the combined effects of global headwinds, domestic challenges, and geopolitical risks weigh on economic momentum, and the outlook is highly uncertain. Growth is set to slow this year in the Middle East and North Africa region, driven by lower oil production, tight policy settings in emerging market and middle-income economies, the conflict in Sudan, and other country-specific factors. In the Caucasus and Central Asia, although migration, trade, and financial inflows following Russia’s war in Ukraine continue to support economic activity, growth is set to moderate slightly this year. Looking ahead, economic activity in the Middle East and North Africa region is expected to improve in 2024 and 2025 as some factors weighing on growth this year gradually dissipate, including the temporary oil production cuts. But growth is expected to remain subdued over the forecast horizon amid persistent structural hurdles. In the Caucasus and Central Asia, economic growth is projected to slow next year and over the medium term as the boost to activity from real and financial inflows from Russia gradually fades and deep-seated structural challenges remain unsolved. Inflation is broadly easing, in line with globally declining price pressures, although country-specific factors—including buoyant wage growth in some Caucasus and Central Asia countries—and climate-related events continue to make their mark. Despite some improvement since April, the balance of risks to the outlook remains on the downside. In this context, expediting structural reforms is crucial to boost growth and strengthen resilience, while tight monetary and fiscal policies remain essential in several economies to durably bring down inflation and ensure public debt sustainability.

Keywords:
growth; inflation; public debt; external financing; commodity prices; structural reforms; investment; labor productivity; financial stability; stress testing; governance reform; GCC country; credit market reform; government effectiveness; reform package; Policy space; Emerging and frontier financial markets; Credit; Labor force participation; Middle East and Central Asia; Central Asia and the Caucasus; Middle East; North Africa; oil exporter; IMF staff calculation; CCA bank; sovereign-bank nexus; Fiscal stance; Current account balance; Commercial banks; Oil exports; Global