Banks, ESG and Nonperforming Loans During Covid-19

Banks in most of the world’s largest economies entered the COVID-19 crisis in better shape than they did the global financial crisis (GFC).1 Yet they have generally underperformed the wider market in both equity and debt in the first six months of 2020, with performance resembling that experienced after the collapse of Lehman Brothers in 2008.2

While the financial sector prepares for a surge in nonperforming loans (NPLs), banks with stronger ESG risk management — which includes choices about whom they lend to and for what purpose — were more financially resilient, in terms of their asset quality, profitability and capitalization, in the first half of 2020.

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