The Bank of International Settlements recently released a report entitled "Covid-19 Policy Measures to Support Bank Lending to review policies designed to support lending. The report noted that in the wake of the Covid-19 fallout, policymakers enacted a wide range of measures to support the flow of credit. Some measures strengthened banks' lending capacity by preserving their capital and encouraging flexibility in loss accounting. Others, such as state-backed loan guarantees or funding for lending programmes, incentivized banks to use their available capacity. It found that both types of measures contributed to lending growth. In particular, the report contained the following key takeaways:
- Since the start of the Covid-19 pandemic, policy measures have supported lending by enhancing banks' balance sheet capacity and creating incentives for banks to use this capacity.
- Strong balance sheets allowed banks to accommodate credit line drawdowns at the start of the pandemic, while subsequent policy measures supported further lending.
- Small and medium-sized enterprises, particularly those in sectors hard hit by the pandemic, expanded their borrowing by more in countries with more generous guarantee programmes.