Corporate credit in Russia during COVID-19 pandemic: the role of credit lines

We study corporate loan composition in Russia during the pandemic along two dimensions. First, we analyse the quality composition of borrowers of new loans. Like most existing studies, we measure the quality of borrowers at the levels observed before, not during (or after), the pandemic. Using probability of default to measure borrower quality, we find that the share of loans provided by banks to firms with weaker fundamentals, as identified even before the pandemic, increased during the pandemic. This increase is economically significant. The result does not depend on the ’riskiness’ of banks (as measured by the share of nonperforming loans on their balance­sheets). We argue that the subsidised loan programmes (with government guarantees) may help to explain this unpleasant result. Second, we analyse the share of loans provided during pandemic through credit line utilisation as compared with new stand­alone loans. We find that credit line utilisation increased during the pandemic irrespective of firms’ ex ante probabilities of default. Thus, credit lines played the role of an automatic stabiliser during the period of high demand for liquidity. At the same time, credit line utilisation decreased during the pandemic among firms in the exposed industries. We also find that financially weaker banks tended to have higher shares of credit line utilisation before and during the pandemic, and this may have implications for the banks’ stability