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1. Home
2. Forbearance lending as a crisis management tool: evidence from Japan
FORBEARANCE LENDING AS A CRISIS MANAGEMENT TOOL: EVIDENCE FROM JAPAN
Staff working papers set out research in progress by our staff, with the aim of
encouraging comments and debate.
Published on 13 December 2024
STAFF WORKING PAPER NO. 1,102
By Isabelle Roland, Yukiko Saito and Philip Schnattinger
Credit market interventions have become a widespread policy tool deployed by
governments around the world to support their corporate sectors following shocks
like the global financial crisis and the pandemic. Among those policies,
forbearance programmes allowed firms to temporarily stop making payments on
certain debt obligations or obtain debt forgiveness. However, the impact of
these policies is not fully understood. In particular, forbearance lending is
generally believed to keep unviable firms alive and contribute to the
zombification of the corporate sector. To inform this debate, we examine the
effects of Japan’s small and medium-sized enterprise (SME) Financing
Facilitation Act, which encouraged banks to offer loan forbearance to troubled
SMEs. We develop a framework to quantify the aggregate impact of the policy
using a difference-in-differences approach combined with back‑of‑the‑envelope
counterfactual exercises. Our evaluation indicates that, when coupled with
business restructuring plans, forbearance lending can temporarily boost output
without contributing to the widespread zombification of the corporate sector.
Forbearance is more effective when credit market disruptions impede the
reallocation of capital.
Forbearance lending as a crisis management tool: evidence from Japan Opens in a
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