The International Monetary Fund (IMF) noted that countries such as India have taken steps to reduce non-performing loans, but stressed that “additional and more timely action is needed”.

The comments, included in its latest Global Financial Stability Report released on Wednesday, also called for improved policies to manage corporate distress.

The IMF report warned of rising medium-term risks and said global financial stability will now depend on how well financial institutions adapt to the new era of low growth and low interest rates.

Medium-term challenges

The report noted that while financial stability risks perceived six months ago — such as the Brexit and its possible global repercussions, high levels of corporate indebtedness in emerging markets, and uncertainties about China’s growth transition — have abated, medium-term challenges are now coming up.

“Medium-term risks are building because we are entering a new era, characterised by chronic weak growth, prolonged low interest rates, and growing political and policy uncertainty,” said Peter Dattels, Deputy Director of the IMF’s Monetary and Capital Markets Department. Noting that banks would need sustained profits to support economic recovery, the IMF called on central banks and policymakers to tackle substantial structural challenges.

It further said emerging market economies should take advantage of supportive external conditions to proactively monitor and address corporate vulnerabilities, especially from excess leverage and foreign exchange exposures.

Corporate leverage in many of the emerging economies may be peaking due the lower investments by companies in the wake of commodity price declines and slowing demand.

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