The World Bank Group has said non-performing loans and hidden debts are making it difficult for banks to grant new credits to customers.In a report released yesterday, the bank disclosed that developing countries face growing risks from financial fragility created by the COVID-19 crisis and non-transparent debt.
The World Development Report 2022: “Finance for an Equitable Recovery” said that risks may be hidden because the balance sheets of households, businesses, banks, and governments are tightly interrelated.
World Bank Group President David Malpass, explained that as rising inflation and interest rate increases pose further challenges to recovery, developing countries need to focus on creating healthier financial sectors.
Today, high levels of non-performing loans and hidden debt impair access to credit, and disproportionately reduce access to finance for low-income households and small businesses.
“The risk is that the economic crisis of inflation and higher interest rates will spread due to financial fragility.
Tighter global financial conditions and shallow domestic debt markets in many developing countries are crowding out private investment and dampening the recovery,” Malpass said.
“It is critical to work toward broad-based access to credit and growth-oriented capital allocation. This would enable smaller and more dynamic firms – and sectors with higher growth potential — to invest and create jobs.”