Potential for Post-Pandemic Recovery: Bank Credit by Productive Sectors in Latin America and the Caribbean

Productive credit can play an important role in the recovery conditions after the crisis caused by the pandemic. Understanding how credit has performed in the region and the factors that influence its performance by sector is essential to guide policymakers on sectors recovery capacity and the alternatives for targeting efforts and supporting specific sectors. This technical note develops an analytical framework focused on the recovery of bank credit at the sector level, formulating a specific index of potential recovery that can be used to improve public policies to support credit recovery by productive sectors. This study confirms that there are better recovery conditions for industries with greater access to prior credit (measured by their leverage), lower participation in the commercial banking portfolio before the pandemic, and better productive performance during the pandemic. These recovery conditions are based on characteristics supported by empirical evidence of relevant factors that affect bank credit. The two sectors with the greatest potential for bank credit recovery in the region, based on pre-pandemic limitations and on their position during the pandemic, are the agriculture, forestry, and fishing sectors, followed by the real estate sector; conversely, the sectors with the least potential for autonomous credit recovery are commerce and manufacturing industries. Alternatives are suggested regarding the design of targeting and support policies for specific sectors in a context of scarce information, fiscal restrictions, and limited budgetary resources.