Tough inspections help cut zombie lending, paper finds
Checking banks’ assessments of asset quality cut loans to non-viable firms – Bank of Portugal paper
Special inspection programmes helped to sharply reduce Portuguese banks’ lending to “zombie firms”, a working paper published by the Bank of Portugal finds.
In On-site inspecting zombie lending, Diana Bonfim et al say banks may continue lending to firms that are no longer viable in order to avoid, or at least delay, recognising their own credit losses.
They use data from on-site inspections carried out in 2012 and 2013, in the aftermath of Portugal’s bail-out from the financial crisis. These
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