Page 256 - Special Topic Session (STS) - Volume 3

STS543 Veronica B. B. et al.

Have domestic prudential policies been effective:
Insights from bank-level property loan data
1
Veronica B. Bayangos , Jeremy De Jesus 2
1
Supervisory Policy and Research Department, Bangko Sentral ng Pilipinas
2 Department of Economic Statistics, Bangko Sentral ng Pilipinas

Abstract
The study examines the effectiveness of domestic prudential policies in
restraining growth of real bank loan commitments and in preserving the
quality of bank loans in the Philippines using panel bank data regression from
the first quarter of 2014 to the fourth quarter of 2017. The study reveals
important findings for the BSP. First, tightening of domestic prudential
policies, particularly those tightening measures meant to preserve resilience
of the banking system are effective in curbing growth of real bank loan
commitments to borrowers for acquiring new residential properties. Second,
this study highlights the bigger negative impact of tightening prudential
measures on real bank loan commitments by universal and commercial banks
compared to thrift banks. Third, the share of bank deposits to total liabilities,
liquidity position and capital adequacy gap are important drivers of growth in
real bank loan commitments to borrowers. Fourth, restricting both
instruments meant to promote resilience of banking system and to address
cyclical movements limits weakening of bank loan quality, with the latter type
of instruments having bigger negative impact. Fifth, tightening of domestic
prudential policies varies with monetary policy conditions and over the
business and financial cycles in the Philippines. JEL classification: E52, E58, G18,
G28.

Keywords
Macroprudential policies, microprudential policy, financial stability, real estate
loans

1. Introduction
The study examines the effectiveness of changes in comprehensive
domestic macroprudential policies in restraining growth of real loan
commitments by universal, commercial and thrift banks to non-financial sector
in the Philippines. In recent findings, the use of domestic prudential policies
to promote financial stability and prevent the occurrence of financial crisis,
which, in turn prevent output losses associated with macroeconomic and
financial volatility and financial crises has been highlighted. The use of
macroprudential tools to promote financial stability has likewise allowed many
central banks to keep monetary policy focused on its primary objective of

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