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Zombie lending: how many wondering souls are there?

Author

Listed:
  • Cecilia Dassatti

    (Banco Central del Uruguay)

  • Francesc Rodriguez-Tous

    (Cass Business School)

  • Rodrigo Lluberas

    (Banco Central del Uruguay)

Abstract

Banks' incentives to implement a policy of forbearance in order to avoid increasing their loan loss reserves leads to loan “evergreening”, through which a bank grants additional credit to a troubled firm. Exploiting granular data of all corporate loans from the Credit Registry in Uruguay, we identify banks' zombie lending strategies. While most papers on zombie lending focus on firms that display low levels of profitability, low productivity or that receive subsidized loans, we analyze zombie lending strategies by looking at changes in loans' repayment schedules granted by banks to firms. This allows us to actually observe the implementation of a zombie lending strategy, instead of inferring it through firms' balance-sheet indicators. After identifying and characterizing zombie lending, we study its effects on credit growth, finding a positive and statistically significant relationship between credit growth and zombie lending.

Suggested Citation

  • Cecilia Dassatti & Francesc Rodriguez-Tous & Rodrigo Lluberas, 2020. "Zombie lending: how many wondering souls are there?," Documentos de trabajo 2020003, Banco Central del Uruguay.
  • Handle: RePEc:bku:doctra:2020003
    as

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    File URL: https://www.bcu.gub.uy/Estadisticas-e-Indicadores/Documentos%20de%20Trabajo/3.2020.pdf
    File Function: First version, 2020
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    References listed on IDEAS

    as
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    9. Alfaro, Laura & García-Santana, Manuel & Moral-Benito, Enrique, 2021. "On the direct and indirect real effects of credit supply shocks," Journal of Financial Economics, Elsevier, vol. 139(3), pages 895-921.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Özlem Dursun-de Neef, H. & Schandlbauer, Alexander, 2021. "COVID-19 and lending responses of European banks," Journal of Banking & Finance, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    banks; credit; loan evergreening; regulatory arbitrage; zombie lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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