Determinants of Zombie Banks in Emerging Markets and Developing Economies

Torsten Wezel, Hannah Sheldon and Zhengwei Fu

No 2024/036, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Banks; Capital Requirements; Financial Crises; summary statistics; zombie bank; zombie share; zombie status; equity ratio; Banking crises; Bank resolution; Credit; Asia and Pacific; Global; Europe; Africa (search for similar items in EconPapers)
Pages: 36
Date: 2024-02-23
New Economics Papers: this item is included in nep-ban, nep-dev and nep-fdg
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