Empirical analysis of corporate credit lines in a turbulent time: The case of Russia

We study corporate credit lines utilisation in Russia during the pandemic, as a period of time characterised by large abrupt shifts in demand as well as supply and very high economic uncertainty. We use direct full granular data on lending from the credit registry of banks’ lending to corporate sector in Russia. We find that the share of loans provided through credit line utilisation increased during the pandemic. Credit lines thus proved to be an automatic stabiliser to aggregate demand in the economy and to corporate liquidity. However, the utilisation was higher for firms outside the exposed industries — those with a-priori less liquidity needs. Moreover, weaker banks, i.e. which had been more exposed to credit losses even before the pandemic, tended to have higher shares of credit lines utilised during the crisis. It means that borrowers that utilise credit lines may create a negative externality on new stand-alone borrowers in a time of crisis as banks in general face tighter capital and lending constraints in such times and weaker banks particularly. And healthier (from less exposed sectors) borrowers tend to create an externality for more exposed to a crisis. The results imply that issuance of credit lines in normal times should be carefully assessed by regulators given its positive and negative effects.