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Fiscal support and banks’ loan loss provisions during the COVID-19 crisis

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  • Degryse, Hans
  • Huylebroek, Cédric

Abstract

We study the effect of governments’ fiscal support on banks’ loan loss provisioning during the COVID-19 pandemic. In addition, we decompose fiscal support into direct support and liquidity support to examine the effect of different types of support measures on banks’ loan loss provisioning. Direct support generally refers to cash transfers, tax reliefs, and tax deferrals, while liquidity support generally refers to government-backed loans and equity injections. We find that direct support reduced banks’ loan portfolio risk whereas liquidity support did not. Moreover, we find the effect goes beyond a macroeconomic stabilization effect, suggesting that direct support directly contributed to mitigating banks’ loan portfolio risk during the pandemic. Our results are robust to controlling for other policy interventions, alternative model specifications, and an instrumental variable approach. We further discuss the policy implications of our analysis.

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  • Degryse, Hans & Huylebroek, Cédric, 2023. "Fiscal support and banks’ loan loss provisions during the COVID-19 crisis," Journal of Financial Stability, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:finsta:v:67:y:2023:i:c:s1572308923000505
    DOI: 10.1016/j.jfs.2023.101150
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    Cited by:

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    2. Peterson K. Ozili, 2024. "Bank Loan Loss Provision Determinants in Non-Crisis Years: Evidence from African, European, and Asian Countries," JRFM, MDPI, vol. 17(3), pages 1-15, March.
    3. Polina Popova, 2024. "COVID-19, Corporate Non-performing Loans, and Corporate Lending Dynamics: Evidence from Russian Regions," HSE Working papers WP BRP 93/FE/2024, National Research University Higher School of Economics.

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    More about this item

    Keywords

    Loan loss provisions; Banks; Fiscal support; COVID-19; Crisis;
    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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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