Forbearance Patterns in the post-crisis Period

Using loan-level data from all Irish banks, we provide evidence for several lending patterns of troubled banks. We find the so-called ``Extend and Pretend'' strategy where stressed banks are more likely to grant or increase... [ view full abstract ]

Using loan-level data from all Irish banks, we provide evidence for several lending patterns of troubled banks. We find the so-called ``Extend and Pretend'' strategy where stressed banks are more likely to grant or increase the overall limit to riskier borrowers. Those borrowers are also more likely to get a term extension as well as a pause in instalments. In addition, we look at ``Zombie Lending'' as defined in the literature where riskier banks are more likely to grant weak borrowers an interest rate below market values.
We explain how forbearance can decrease the obligatory provisions and prevent a higher Non-Performing Loan ratio on their balance sheets.