Page 258 - Special Topic Session (STS) - Volume 3

STS543 Veronica B. B. et al.
This study raises five main questions: First, are domestic prudential policies
effective in restraining growth of bank loan commitments using bank-level
residential property loan data in the Philippines? Second, do responses to a
domestic prudential shock differ by type of bank? Third, do responses to
domestic prudential policies vary over monetary policy conditions? Fourth, do
responses to domestic prudential policies vary over financial cycles of the
Philippines? and fifth, do responses to domestic prudential policies restrict
bank riskiness?.
This study has three possible contributions to empirical studies. First, this
study updates Bayangos (2017) study that documents a database of domestic
prudential measures and changes in monetary policy stance for the Philippines
to include changes in prudential limits from the first quarter of 2014 to the
fourth quarter of 2017. Second, it develops a new database using data from
the quarterly bank reports on the Residential Real Estate Price Index (RREPI)
from the first quarter of 2014 to the fourth quarter of 2017. Third, the study
uses these databases to examine the effectiveness of both tightening and
easing of domestic prudential policies to growth of real bank loan
commitments and the overall quality of bank loan portfolio. The study will then
examine the importance of monetary policy reaction to address changes in
real bank loan commitments and in changes in the quality of loan portfolio
and the interaction among different instruments of domestic prudential
policies. The rest of this study is organized as follows. Section II discusses
baseline database and empirical methodology, while Section III highlights the
main findings of the paper. Section IV concludes.

2. Baseline Database and Empirical Methodology
Measure of bank loan commitment. This database compiles the volume or
number of loans granted for purchases of new residential properties, the
average acquisition cost of the property, the appraised value of the residential
unit, the appraised value of the lot, the location of these properties, the type
of residential property classified into single- detached, duplex, apartments and
condominiums from 101 banks. The focus of this database is the compilation
of average acquisition cost of residential property as indicator of the
commitment of banks to grant loans based on the acquisition cost of the
property. The data are generated from the quarterly report submitted by
U/KBs and TBs on all Residential Real Estate Loans (RRELs) granted for the
generation of RREPI for the Philippines. This study used the appraised value of
the residential unit and the appraised value of lot in real terms.
Database for domestic prudential policies. This database includes all the
domestic prudential measures adopted by the BSP, classified by instrument,
such as, capital-related measures that aim to strengthen banks’ ability to
absorb risks, adjusts banks’ capital requirements. These measures include

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