Forbearance Patterns in the Post-Crisis Period

July 24, 2020

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Katharina Bergant, and Thore Kockerols. Forbearance Patterns in the Post-Crisis Period, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using supervisory loan-level data on corporate loans, we show that banks facing high levels of non-performing loans relative to their capital and provisions were more likely to grant forbearance measures to the riskiest group of borrowers. More specifically, we find that risky borrowers are more likely to get an increase in the overall limit or the maturity of a loan product from a distressed lender. As a second step, we analyse the effectiveness of this practice in reducing the probability of default. We show that the most common measure of forbearance is effective in the short run but no forbearance measure significantly reduces the probability of default in the long run. Our evidence also suggests that forbearance and new lending are substitutes for banks, as high shares of forbearance are negatively correlated with new lending to the same group of borrowers. Taken together, these findings can help policy makers shape surveillance and regulation in a future recovery from the Covid-19 pandemic.

Subject: Banking, Capital adequacy requirements, Credit, Credit risk, Financial institutions, Financial regulation and supervision, Loans, Money, Nonperforming loans

Keywords: Bank characteristic, Banking Regulation, Borrower rating, Capital adequacy requirements, Credit, Credit risk, Global, Interest rate, Loans, Nonperforming loans, Non-Performing Loans, Outstanding balance, Rating class, Risky borrower, Time level, WP, X Time, Zombie Lending

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/140
Stock No:

WPIEA2020140
ISBN:

9781513550817
ISSN:

1018-5941

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