Zombie lending: how many wondering souls are there?

Cecilia Dassatti (), Francesc Rodriguez-Tous () and Rodrigo Lluberas
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Cecilia Dassatti: Banco Central del Uruguay
Francesc Rodriguez-Tous: Cass Business School

No 2020003, Documentos de trabajo from 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.

Keywords: banks; credit; loan evergreening; regulatory arbitrage; zombie lending (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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