Could corporate credit losses turn out higher than expected?

John Juselius and Nikola A. Tarashev

No 3/2021, BoF Economics Review from Bank of Finland

Abstract: While corporate credit losses have been low since the start of the Covid-19 pandemic, their future evolution is quite uncertain. Using a forecasting model with a solid track record, we find that the baseline scenario ("expected losses") is benign up to 2024. This is due to policy support measures that have kept debt service costs low. However, high indebtedness, built up when the pandemic impaired real activity, suggests increased tail risks: plausible deviations from the baseline scenario ("unexpected losses") feature ballooning corporate insolvencies. Taken at face value, the low expected loss forecasts are consistent with low bank provisions, whereas the high unexpected loss forecasts call for substantial capital.

Keywords: COVID-19 (search for similar items in EconPapers)
JEL-codes: E44 E47 E65 G17 G21 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-isf, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofecr:32021

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