The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Public bank lending in Africa in times of crisis

“…Public banks can allocate their funds to connected firms (Khwaja andMian, 2005, Sapienza, 2005), and this support can be increased during downturns due to limited scrutiny of banks' lending strategies (Coleman and Feler, 2015). In addition, during a crisis, public supportincluding lending by public bankscan help to maintain zombie firms above the waterline (Zoller-Rydzek and Keller, 2020; Huneeus et al, 2022). However, these firms will fail to repay their loans in the long run.…”