Has the Crisis Introduced a New Paradigm in Banks' Credit Allocation? The Non‐financial Corporations' Perspective

In the years prior to the onset of the global financial crisis, the sharp credit growth, in a context of optimistic income expectations, boosted by an increase in competition in the banking system, less restrictive lending criteria and favorable financing conditions in international wholesale debt market, led to a marked rise in the debt levels of non‐financial corporations. In this paper, we use a panel data regression, with fixed effect estimators, to study how the relationship between bank credit granted to each firm and a set of firm‐specific indicators, that measure overall balance sheet performance and riskiness, changed over the 2006–2017 period. The results suggest that, during and after the Portuguese sovereign debt crisis, the sensitivity of the bank credit granted to firms to overall balance sheet strength and riskiness of firms increased, except in the case of leverage, where the sensitivity decreased slightly. Nonetheless, banks on average lent more to lower leveraged firms than to higher leveraged firms throughout the period considered. The results also show that statistical significance slightly reduces with the size of the firm and, when compared with the pre‐crisis sub‐period, banks did not increase lending to higher leveraged large firms in the crisis and post‐crisis sub‐periods. Finally, we find that the most capitalized banks were the ones more willing and/or able to support firms, during the crisis, even firms that experienced a deterioration in their indicators.