The Impact of Covid-19 Pandemic on Syndicated Loans

Due to the COVID-19 crisis, companies faced higher borrowing rates, which were

worsened by their economic limitations and reliance on debt financing. In the case of severe

limitations, we expect banks to reduce credit supply and companies to raise credit demand,

leading to an increase in loan spreads. (Hasan et al., 2020)

In the United States, banks that were more affected by COVID-19 and the lockdown

policies faced an increase in their loss provisions and non-performing loans. (Hasan et al.,

2020) When either the lender or the borrower was more exposed to the pandemic,

syndicated loan spreads rose as well. From 2018 to 2020, we regressed variations in loan

demand on the number of COVID-19 cases per 1000 persons in each country. This

suggests that loan demand has increased significantly in the countries most affected by the

pandemic.

Financial frictions during times of recession may prohibit banks with lower capital

from obtaining affordable financing sources to keep their loans supported. (Özlem Dursun-de

Neef & Schandlbauer, 2021). We expect worse-capitalized banks to reduce their loans

during the pandemic since they won't be able to fund new ones. (Goel, 2021) The alternate

idea is that during times of contraction, banks with lower capital might boost their lending to

assist their financially distressed borrowers. The development of lending relationships and

the use of bank and company subsidiaries are two potential sources in the effect of the bank

and firm level COVID-19 exposure on loan spreads that can further help mitigate the

negative repercussions of this exposure.

Goel, T. (2021). Bonds and syndicated loans during the Covid-19 crisis: decoupled again? Bis.org.
Retrieved 14 December 2021, from https://www.bis.org/publ/bisbull29.pdf.

Hasan, I., Politsidis, P., & Sharma, Z. (2020). Bank Lending during the COVID-19 Pandemic. SSRN
Electronic Journal. https://doi.org/10.2139/ssrn.3711021

Özlem Dursun-de Neef, H., & Schandlbauer, A. (2021). COVID-19 and lending responses of
European banks. Journal Of Banking & Finance, 133, 106236.
https://doi.org/10.1016/j.jbankfin.2021.106236