What Determines the Use of Collateral-Forbearance Lending?

[[abstract]]In this paper, I try to show that, as an alternative view to the public (government’s) regulatory forbearance, "collateral forbearance ", a private lending-policy that banks were engaged in has been considered as one of the main suspects for banks to roll over non-performing loans and delay in clearing up bad loans to avoid reporting them in financial reports. On the theoretical side, the question may arise why banks should rationally choose such an action instead of simply writing off bad loans. I investigate the foreclosure policy of collateral-based loans in which the endogenous collateral value plays a crucial role. Drawing from current theories, this paper examines this question empirically by hypothesizing that the use of collateral-based loan is a function of characteristics of the firm-borrower (credit quality), the bank-lender (bank health), the borrower-lender relationship (connection), and macroeconomic conditions (business cycle). The empirical results support the hypotheses of “ever-greening”, “collateral forbearance”, “certain timing forbearance”