James Saft is a Reuters columnist. The opinions expressed are his own.
What do you call an entire economy which sweeps its insolvencies under the carpet and hopes that something will turn up?
An investigation by the Bank of England, reported in its Financial Stability Report released on Friday, found widespread evidence that banks are extending loan forbearance to weakened borrowers.
And because loans in forbearance often aren’t classified as impaired, banks may be skimping on loan provisions, giving a deceptively flattering account of their capital position and health.
Forbearance, usually some form of break given to a borrower such as extending the term or making the loan interest-only, is offered to some borrowers when they miss a payment or violate part of the loan agreement.
What’s surprising about the BOE’s findings is how widespread the practice is, not only in residential mortgages, but in commercial real estate lending and corporate lending.