Studying the impact of EBRD’s COVID-19 response package
The COVID-19 crisis had negative spillover effects across the global economy, including on bank lending and other performance-related outcomes. The European Bank for Reconstruction and Development (EBRD) became the first international financial institution to implement a support package for its private sector clients to mitigate the adverse effects of COVID-19 on banks, firms, and nations. The Bank’s Independent Evaluation Department commissioned 3ie to evaluate the impact and assess the tangible outcomes of the package.
Background
EBRD is an international financial institution that provides project financing for banks, industries and businesses. During the pandemic, restrictions on movement and economic activity adversely affected markets in most countries, including EBRD’s countries of operation. To mitigate the credit gaps arising for its existing clients in these countries, EBRD rolled out a Solidarity Package (SP) of targeted emergency financing. The primary objective of this program was to strengthen the resilience of banks, firms, and countries to the COVID-19 crisis.
Overview
The emergency liquidity support was anticipated to mitigate the adverse effects of COVID-19 on various outcomes, including liquidity, lending, non-performing loans, asset quality, and capital.
3ie conducted an impact evaluation to study the effects of this emergency liquidity support on those outcomes for the banks that received EBRD’s support compared to those that did not. We examine: 1) the level of the lending/performance outcome directly after the intervention period begins, and 2) the difference in the lending/performance outcome variable in the post-intervention compared to pre-intervention periods. Our study focused on the banking industry—as around 40% of the total SP’s business income in new investments went to clients in the banking sector.
This research adds to the understanding of the potential benefits such programs can have in various contexts.
Approach
We employed controlled interrupted time series (CITS) to assess the impact of EBRD’s Tier 1, as it controls for bank-level time invariant characteristics as well as time-varying characteristics common to treatment and comparison banks. As one of the first impact evaluations within this sector that leverages CITS, this analysis demonstrates that this is a viable method and could be used in future banking sector evaluations, particularly with larger samples.
Findings
We find that banks that received the emergency liquidity support experienced a significant increase in bank lending. However, there was no statistically significant impact on bank performance outcomes (return on assets, return on equity, non-performing loans ratio, liquidity coverage ratio, and capital adequacy ratio) over time.
This is one of the first impact evaluations within this sector and highlights the need for additional work to assess the impact of liquidity support on bank performance outcomes in low and middle-income countries.
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