The Impact of Ltv Policy on Bank Lending: Evidence from Thailand
12 Pages Posted: 19 Mar 2020
Date Written: February 19, 2020
Abstract
The Great Financial Crisis (GFC) in 2008−09 highlighted the importance of safeguarding financial stability and the need to carefully assess and contain systemic risks. At the Bank of Thailand (BOT), financial stability issues have been an integral part of policymaking over the past decade. To increase the resiliency of the financial system and contain the build-up of systemic vulnerabilities, macroprudential policy (MaP) measures have been employed on several occasions. Chief among them are measures on housing credit in the form of loan-to-value (LTV) measures.
The main objective of the LTV measures implemented in Thailand is to ensure that banks are sufficiently prudent in their lending standard to safeguard individual banks’ solvency and the stability of the whole financial system. Meanwhile, a potential impact on loan growth can be seen rather as a secondary objective with no explicit policy targets. In 2003, the first measure on LTV ratios was implemented to mitigate a build-up of risks and pre-empt potential speculation in the high-value housing segment, by imposing a strict LTV limit of 70%. Later, in 2009, this measure was relaxed to support a recovery in the property market. Subsequently, LTV tightening measures on low-value mortgage loans were enforced in 2011 and 2013 to signal potential vulnerabilities in these housing segments.
This paper assesses the impact of LTV measures implemented in the housing sector in Thailand in 2009, 2011 and 2013. The analysis will be based on the banklevel and contract-level data provided by all domestic commercial banks in Thailand during the period from Q1 2004 to Q1 2018. We follow the empirical strategy as described in the meta-analysis section introduced in the first paper of this volume, as well as an alternative specification – focusing on the change in the bank loans’ LTV distribution – that yields interesting results in the case of Thailand.
Full Publication: Measuring the Effectiveness of Macroprudential Policies Using Supervisory Bank-Level Data
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