We update our forecasts of NPL Ratios in many countries based on the most recent macroeconomic scenarios of the World Economic Outlook published by the IMF in April 2024 (IMF 2024).
The main observation is that while there was a clear expectation for increased credit risk in 2024, most broad-based NPL indicators available thus far have not yet shown a substantial deterioration in loan performance. Default rates on weaker borrowers have increased in Europe and the US and are expected to remain elevated into 2025.
We comment on other indicators such as bankruptcies that support the expectation for modestly higher credit losses going forward. As inflation pressure has receded in many countries and lending rates have stabilised, the pressure on borrowers from higher debt service costs has softened but has not disappeared.
Overall the outlook for NPLs in 2024 is more benign than it was a year ago with most countries expected to see fairly stable NPL ratios over the next two to three years.
