City Research Online

Abstract

We study the different rationales behind zombie lending. Exploiting granular data of different corporate loan types, we identify loan evergreening as instances where firms receive interest-only loans to repay existing amortizing loans. Avoidance of losses that erode bank capital is an important reason for zombie lending to multiple-bank firms, but not to single-bank firms. When banks provide loan evergreening to single-bank firms, these firms are less likely to receive credit and additional loan evergreening by the bank in the future, more likely to default, and to start new lending relationships afterwards; this is consistent with banks providing loan evergreening to allow less creditworthy borrowers to obtain additional financing elsewhere and reduce their own exposure. Finally, zombie lending to multiple-bank firms leads to credit displacement, but zombie lending to single-bank firms does not.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Dassatti, C., Lluberas, R. & Rodriguez Tous, F. (2025). Loan evergreening through banks' lenses: Evidence from credit product-level data. Journal of Money, Credit and Banking, which is to be published in final form at https://onlinelibrary.wiley.com/journal/15384616. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords:	banks, credit, loan evergreening, regulatory arbitrage
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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