# **Figure 2: CDBP vs. bank risks, GDP growth outlook, and fiscal space**

**Panel A: Increase in NPLs that will wipe out capital buffers for at least 20% of total banking system assets (in percentage points)**

**Panel B: Increase in NPLs that will wipe out capital buffers for at least 20% of total banking system assets (in percentage points) vs. EIU banking risk index**

<!-- Start of picture text --> 45 Upper middle income Lower middle income Low income<br>45<br>40<br>40<br>35<br>35<br>30<br>30<br>25 25<br>20 20<br>15 15<br>10<br>10<br>5<br>5<br>0<br>0 30 40 50 60 70 80<br>EAP ECA LAC MENA SAR SSA EIU banking risk indicator (high=100)<br>(in percentage points)<br>(2019, in percentage points)<br>Consolidated Distance to Break Point (CDBP)<br>Consolidated Distance to Break Point (CDBP)<br><!-- End of picture text -->

**Panel C: Increase in NPLs that will wipe out capital buffers for at least 20% of total banking system assets (in percentage points) vs. real GDP growth (2021 forecast)**

**Panel D: Increase in NPLs that will wipe out capital buffers for at least 20% of total banking system assets (in percentage points) vs. general government gross debt**

<!-- Start of picture text --> Upper middle income Lower middle income Low income Upper middle income Lower middle income Low income<br>45 45<br>40 40<br>35 35<br>30 30<br>25 25<br>20 20<br>15 15<br>10<br>10<br>5<br>5<br>0<br>0<br>0 50 100 150 200<br>-2 0 2 4 6 8<br>General government gross debt - 2021 forecast (% of GDP)<br>Real GDP Growth - 2021 forecast (% of GDP)<br>(in percentage points) (in percentage points)<br>Consolidated Distance to Break Point (CDBP) Consolidated Distance to Break Point (CDBP)<br><!-- End of picture text --> Source: Own calculations using data from Fitch (up to third quarter 2020), the Global Economic Prospects (2021), and the World Bank Macro-Fiscal Model Data Base available at https://mtimodelling.worldbank.org/highfreqmonitor/dashboard.html. Note: All figures report the percentage point increase in the non-performing loan ratio at the country level (the Consolidated Distance from Break Point - CDBP) that wipes out capital buffers for banks representing at least 20 percent of the banking system assets (Y axes). Higher values denote higher capacity to absorb NPLs increases. Panel A shows the country distribution of the CDBP across World Bank developing regions (EAP: East-Asia Pacific; ECA: Europe and Central Asia; LAC: Latin America and the Caribbean; MENA: Middle East and North Africa; SAR: South Asia; SSA: Sub-Saharan Africa). Panel B plots the CDBP against the Economist Intelligence Unit (EIU) banking risk indicator. Panel C plots CDB against the real GDP growth. Lebanon is not included in the graph because of a too-low value for the 2021 real GDP growth. Panel D plots CDP against the general government gross debt.

To evaluate how the CDBP could be used in country-monitoring exercises, we plot it against a measure of banking sector risk computed by the Economist Intelligence Unit (EIU). The two indicators appear to be weakly related, suggesting that information conveyed by CDBP could complement the EIU banking sector risk indicator as the CDBP focuses on the weakest tail of the distribution of banks according to their exposure to a credit shock.

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