Determinants of Zombie Banks in Emerging Markets and Developing Economies

By Torsten Wezel, Hannah Sheldon, Zhengwei Fu

February 23, 2024

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Torsten Wezel, Hannah Sheldon, and Zhengwei Fu. Determinants of Zombie Banks in Emerging Markets and Developing Economies, (USA: International Monetary Fund, 2024) accessed December 22, 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

While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies. We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggregating by region. The paper’s overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.

Subject: Bank resolution, Banking crises, Credit, Financial crises, Money, Public debt

Keywords: Africa, Asia and Pacific, Bank resolution, Banking crises, Banks, Capital Requirements, Credit, Equity ratio, Europe, Financial Crises, Global, Summary statistics, Zombie bank, Zombie share, Zombie status

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/036
Stock No:

WPIEA2024036
ISBN:

9798400267888
ISSN:

1018-5941

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