Fast to cut, slow to restore: Bank lending responses to IFRS 9 stage migrations

We investigate how banks adjust lending and provisioning following credit risk stage migrations under IFRS 9, using loan-level data from the European credit register, AnaCredit. While provisions rise with downgrades and fall with upgrades, lending responses are sharply asymmetric: downgrades prompt immediate credit contraction, while upgrades lead to only cautious recovery. Stage 2 acts as an early-warning signal, and Stage 3 defaults leave a lasting stigma, constraining post-recovery credit. These findings suggest IFRS 9 enhances risk recognition but may amplify procyclical lending, with important policy implications for balancing financial stability and credit access across the cycle. • Banks cut credit sharply after risk downgrades but do not restore lending proportionally after upgrades, revealing persistent credit risk asymmetry. • Classification into Stage 2 triggers pre-default credit tightening, serving as a proactive signal for banks to increase provisions and reduce exposure. • Even after recovery, Stage 3 loans face long-term credit constraints due to relapse concerns and regulatory scrutiny. • IFRS 9 promotes timely risk recognition but may also amplify procyclical lending, limiting credit access during downturns and slowing recovery.