Government support measures in Portugal during the COVID-19 pandemic

During the COVID-19 pandemic, the Portuguese government provided a plethora of different support measures for firms. These included state-guarantees for new loans and a public moratorium for existing ones. These measures have been essential to support firms in the most acute phase of the crisis by providing liquidity at reduced costs in a context of an abrupt increase in the level of risk. However, there are still open questions regarding the medium- to long-term impact of these measures.

Did loans with state guarantees only go to firms that were viable before the onset of the pandemic, or did they also lead to an increase in the credit granted to unproductive and high-risk firms? Were there any significant differences between the risk profiles of firms accessing the moratorium and those accessing the public guarantees, since access to the latter was much stricter? This paper addresses these questions using detailed loan-level data from Banco de Portugal’s Central Credit Register matched to both firm and bank balance-sheet data, which allows for a separation between credit-supply and credit-demand effects.

The paper has three main findings. First, guaranteed loans went mostly to firms operating in the sectors most severely hit by the pandemic and to firms that had a credit relation and/or benefitted from a state guarantee before the onset of the COVID-19 pandemic. Second, the Portuguese public guarantee scheme seems to have mainly supported lower-credit-risk firms, i.e., those with a lower probability of default. Additionally, riskier firms paid higher interest rates and obtained smaller guaranteed loans than more viable firms. Finally, and in contrast to the state guarantees, the results show that riskier firms were more likely to apply for the moratorium.

Click here to go to the paper by Márcio Mateus and Katja Neugebauer.