borrowers with a below-90th-percentile probability of accepting the offer. In other words, our results suggest that merely receiving the relationship offer reduces the likelihood of loan default, regardless of whether the borrower accepts the offer and benefits from a temporary relaxation of financial constraints or not.

Taken together, this provides evidence that the improvement in repayment in response to forbearance offers framed as an initiative of the lender is not explained by the temporary relaxation of credit constraints and differential changes in the ability to repay as a result of accepting the moratorium.

# **3.6.2 How do borrowers interpret the offer?**

Having ruled out that forbearance offers impact repayment through a change in the ability to repay, we next explore alternative channels through which the offers could affect the _willingness_ to repay.

To do so, we first present evidence from a survey designed to understand how borrowers interpret the forbearance offers extended in our experiment (first-order beliefs) and what they expect the lender to infer from their response to the offer (second-order beliefs). The results are informative about alternative signaling interpretations of our main result. We collected this information using a follow-up survey with 190 borrowers who had received either the regulator or relationship forbearance offer. In the survey, respondents were asked (i) how they thought recipients of the offer had been chosen, (ii) what they thought their response to the offer would signal to the lender and (iii) what they thought was the main rationale for timely loan repayment.

Table 5 reports the results of this exercise by comparing responses of experimental participants assigned to the regulator and relationship offer treatment conditions, respectively. We first asked respondents about how they thought recipients of the offers were selected. Respondents in the regulator offer group were 11 percentage points (28 percent) more likely to respond that they thought offers were issued to _all borrowers_ than respondents in the relationship offer group, who were 14 percentage points (48 percent) more likely to believe that forbearance offers were issued only to the lender’s _most creditworthy_ borrowers. This makes it unlikely that loan repayment improves because customers interpret a forbearance offer from the lender as a signal that they have been singled out as a troubled borrower and overcompensate by prioritizing payments to the lender to prove their creditworthiness. Contrary to this specific mechanism, borrowers in the relationship offer treatment assume that the lender would extend repayment deferrals only to its most creditworthy customers.

We next asked borrowers how they thought accepting the offer would affect their creditworthiness in the eyes of the lender. We find that borrowers in the relationship offer condition are 14 percentage points (82 percent) more likely to believe that accepting a forbearance offer is not interpreted as a signal of creditworthiness by the lender than borrowers in the regulator offer condition. This is consistent with the first-order belief that recipients of the relationship offer were selected from the lender’s most creditworthy customers, so that—in this relatively homogeneous group—there is little additional information to be gained from observing whether a borrower accepts or declines the offer.

Finally, we asked borrowers in the relationship and forbearance offer conditions about their main motivation for timely loan repayment. In line with the interpretation that a forbearance offer issued explicitly by one’s lender reminds borrowers about the value of a continued relationship with the 18