On-site inspecting zombie lending

Hans Degryse, Diana Bonfim, Geraldo Cerqueiro and Steven Ongena

No 14754, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In spite of growing regulatory pressure in most developed economies, “zombie lending†remains a widespread practice by banks. In this paper we exploit a series of large-scale on-site inspections made on the credit portfolios of several Portuguese banks to investigate how these inspections affect banks’ future lending decisions. We find that an inspected bank becomes 20% less likely to refinance zombie firms, immediately spurring their default. However, banks change their lending decisions only in the inspected sectors. Overall, banks seemingly reduce zombie lending because the incentives to hold these loans disappear once they are forced to recognize losses.

Date: 2020-05
New Economics Papers: this item is included in nep-ban and nep-rmg
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Related works:
Journal Article: On-Site Inspecting Zombie Lending (2023)
Working Paper: On-Site Inspecting Zombie Lending (2020)
Working Paper: On-site inspecting zombie lending (2020)
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