The Effect of Financial Policies Implemented during COVID-19 on Bank Credit in the Central American Region

Abstract

As a result of the COVID-19 pandemic, governments and central banks worldwide implemented a wide range of policies to support households and businesses, among them a series of measures to support the availability of credit. This paper quantitatively assesses how monetary and regulatory policy measures helped lessen the effect of the economic downturn on bank credit to the private sector, and on non-performing loans, and focuses on small EMEs, which have been the subject of little analysis in this regard. Specifically, it looks at a number of countries in the Central American region. The resulting estimates show that the policies implemented substantially reduced the negative impact of the crisis on bank credit and nonperforming loans, and that the measures largely responsible for this mitigation were regulatory rather than monetary.