scholarly journals MORTGAGE LENDING AND FINANCIAL STABILITY IN ASIA

2018 ◽  
Vol 63 (01) ◽  
pp. 125-146
Author(s):  
PETER J. MORGAN ◽  
YAN ZHANG
Keyword(s):  
Financial Stability ◽  
Mortgage Lending ◽  
Expected Improvement ◽  
Probability Of Default ◽  
Z Score ◽  
Macroprudential Policy ◽  
Two Measures ◽  
Policy Measures ◽  
Negative Impacts ◽  
The Impact

We estimated the effect of the share of mortgage lending by individual banks (together with some control variables) on two measures of financial stability — the bank Z-score and the non-performing loan ratio — for a sample of 397 banks in 19 emerging Asian economies for the period 2003–2014 from the Bankscope database. We find evidence that an increased share of mortgage lending is positive for financial stability, specifically by lowering the probability of default by financial institutions and reducing the non-performing loan ratio, at least in non-crisis periods, for levels of mortgage shares up to 23–65%. For higher levels of mortgage lending shares, there is some evidence that the impact on financial stability turns negative. We also find that the share of mortgage lending can be a useful measure of both financial development and financial inclusion. This finding most likely reflects the effect of a higher share of mortgage lending in diversifying the mix of banks’ assets and thereby reducing overall risk. However, if the share of mortgage lending is too high, then the diversification effect diminishes. Therefore, the challenge is to balance the expected improvement in financial stability due to asset diversification against negative impacts that might result from easier lending standards or too rapid increases in mortgage lending that could trigger a bubble in the housing market. This highlights the need for prudent monetary policy and macroprudential policy measures to forestall the development of such bubbles.

The impact of credit risk on the financial stability of commercial banks in Vietnam

2021 ◽  
Vol 11 (2) ◽  
pp. 67-80
Author(s):  
Nguyen Quoc Anh ◽  
Duong Nguyen Thanh Phuong
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Financial Stability ◽  
Dynamic Panel Data ◽  
Z Score ◽  
Return On Equity ◽  
Score Analysis ◽  
Negative Effect ◽  
The Difference ◽  
The Impact

This study investigates the impact of credit risk on the financial stability of Vietnamese commercial banks. The paper uses the Z-score to proxy the financial stability of banks. We use the data of 27 Vietnamese commercial banks on BankScope, during 2010 - 2019. The paper applied a dynamic panel data approach; the selected method is the difference GMM (DGMM). The key question discussed is which factor impacts on Z-score. Analysis results show the negative effect of non-performing loans on the financial stability of banks. When commercial banks have higher non-performing loans, the lower the financial stability is. Additionally, bank-specific variables such as equity on asset ratio, the return on equity, the size of the bank and set of macroeconomic variables affect the bank’s financial stability. Based on the analysis results, we imply relevant policies for the State Bank of Vietnam and commercial banks.

scholarly journals The Role of Macroprudential Policy in Bank Housing Loans Portfolio Quality Assurance

2021 ◽  
Vol 59 (2) ◽  
pp. 281-296
Author(s):  
Mirela Mitrašević
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
Residential Real Estate ◽  
Macroprudential Policy ◽  
Mortgage Loans ◽  
Real Estate Markets ◽  
The Real Estate ◽  
Business Conditions ◽  
Policy Measures ◽  
The Impact

Abstract The subject of this paper is the contemporary trend in residential real estate markets in European countries and their impact on the quality of banks’ housing loan portfolios. Due to the fact that these are the markets that still have not fully recovered from the previous financial crisis, and at the time of writing were exposed to significant uncertainty related to the effects of specific business conditions caused by COVID-19, the research on the risks related to these markets and tools which can mitigate their consequences are of paramount importance. Given the fact that the importance of monitoring the emergence of systemic risks in the financial system and the design of macroprudential tools for Bosnia and Herzegovina is yet to come, one of the aims of the paper is to present the results of the research on the effectiveness of certain macroprudential policy measures for mitigating the impact of price fluctuations in residential real estate markets. A special attention is paid to the challenges that the real estate market and mortgage loans have been facing during the crisis caused by the COVID-19 pandemic. The paper provides a basis for future researches examining to which extent the applied macroprudential policy measures in some countries have been effective in hitherto unprecedented business conditions

scholarly journals Risky Mortgages and Macroprudential Policy: A Calibrated DSGE Model for Lithuania

Ekonomika ◽  
2021 ◽  
Vol 100 (2) ◽  
pp. 6-39
Author(s):  
Jaunius Karmelavičius
Keyword(s):  
Credit Risk ◽  
Open Economy ◽  
Banking Sector ◽  
Capital Requirements ◽  
Mortgage Lending ◽  
Slight Reduction ◽  
Dsge Model ◽  
Macroprudential Policy ◽  
Credit Cycle ◽  
The Impact

Following the financial crisis of 2009 there was an emergence of macroprudential policy tools, as well as a need to model the macroeconomy and the financial sector in a coherent framework. This paper develops and calibrates a small open economy DSGE model for Lithuania to shed some light on the interactions between the macroeconomy and the banking sector, regulated by macroprudential policy. The model features housing market, and endogenous credit risk a la de Walque et al. (2010), whereby the household can default on mortgage repayments, what leads to housing collateral seizure. Foreign-owned banks, that are subject to risk-sensitive macroprudential capital requirements, take into account not only the mortgage default rate but also the cap on loan to value (LTV) ratio when making lending decisions. Using this mechanism, we show that while a more stringent LTV constraint reduced credit demand, it can also lead to an expansion in credit supply via lower credit risk. Therefore, a tightening of LTV requirement should result in only a slight reduction in mortgage lending, coupled with lower interest rate margins. The article compares the impact of the tightening of three macroprudential tools, namely, bank capital requirements, mortgage risk weights and LTV limit. We find that broad-based capital requirements, such as the counter-cyclical capital buffer, are less efficient in leaning against the housing credit cycle, because of a relatively large cost incurred on the firm sector.

scholarly journals Macroprudential policy and financial stability, role and tools

2020 ◽  
Vol 4 (4) ◽  
pp. 45-54
Author(s):  
Mehdi Bouchetara ◽  
Abdelkader Nassour ◽  
Sidi Eyih
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Full Employment ◽  
Financial System ◽  
Policy Instruments ◽  
Banking Crises ◽  
Real Economy ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
The Impact

The aim of macroprudential policy is to ensure financial stability by avoiding the outbreak of banking crises, which have a dangerous effect on the economy. Is macroprudential policy effective in the face of banking crises and systemic risks? The macroprudential policy has received significant interest from policy-makers and researchers. A few developing countries were using macroprudential policy tools well before the 2008 financial crisis, but significant progress has been made thereafter in both emerging and industrialized economies to put in place specific institutional settings for macroprudential policy. The fundamental objective of macroprudential policy is to maintain the stability of the financial system by making it more resistant and preventing the risk build-up. The objective of this paper is to analyze the important role of macroprudential policy in ensuring overall financial stability. Since the financial crisis of 2008, macroprudential policy has been increasingly used across economies. These measures aim at smoothing financial cycles and thereby mitigating the impact on the real economy, thereby allowing monetary policy to focus on price stability and promote growth and full employment. Macroprudential policy instruments fall into two categories, depending on their purpose, namely, to prevent procyclicality or to enhance the resilience and soundness of the financial system against shocks. The first category of instruments is used to stop bubbles from forming and smooth cycles, i.e. to force the debt-equity of economic operators on an income basis to prevent unsustainable credit bubbles, or to require dynamic loss provisioning rules. The second category of macro-prudential policy is to improve the resilience to shocks, such as capital surcharges for systemic institutions or the requirement to hold liquid assets to cope with market panics, and to make the financial system less complex. Keywords: macroprudential policy, financial stability, tools and measures, systemic risks.

scholarly journals Financial Consumer Protection in the Household Lending Sector : An Assessment of the Korean Experience

2017 ◽  
Vol 2 (No. 2 Oct 2017) ◽  
pp. 15-34
Author(s):  
Man Cho ◽  
Seung Dong You ◽  
Young Man Lee
Keyword(s):  
Consumer Protection ◽  
Financial Stability ◽  
Credit Card ◽  
Service Providers ◽  
Mortgage Lending ◽  
Mortgage Market ◽  
Financial Inclusion ◽  
Future Research ◽  
Regulatory Authorities ◽  
Policy Measures

The objective of this paper is to offer a systematic review and assessment of the policy measures adopted to date for financial consumer protection (FCP) in the household lending sector in Korea. In so doing, we focus on the “software” aspects of the policies adopted so far in terms of four particular groups of consumer issues: (1) information provision (by service providers), (2) financial literacy programs, (3) sales practices, and (4) dispute resolution (rules and processes). We also attempt to relate the FCP policies to two broader goals of financial market regulations - financial stability and financial inclusion. Our analyses indicate that; the regulatory authorities in Korea initiated the FCP policies early on, which cover a fairly comprehensive set of policy measures with almost all sub-items of the aforementioned four dimensions being included; some of the FCP policies are driven in large part by the intent of stabilizing the housing and mortgage market rather than protecting financial consumers per se, for which the regulatory authorities should weigh the anticipated benefit in terms of financial stability against the unintended cost in financial inclusion; and the Korean FCP policies tend to focus on the residential mortgage lending sector, which should be extended to other consumer lending products (e.g., credit – or non-collateralized – lending, credit card receivables, and car loans). Though seemingly comprehensive, the FCP policies in Korea should be further refined and enhanced with respect to their effectiveness, for which we discuss a series of future research topics.

scholarly journals The Impact of Financial Sector Sustainability Guidelines and Regulations on the Financial Stability of South American Banks

2021 ◽  
Vol 10 (1) ◽  
pp. 111-127
Author(s):  
Pedro Ildemaro Alguindigue Ruiz ◽  
Olaf Weber
Keyword(s):  
Latin America ◽  
Financial Stability ◽  
Banking Industry ◽  
Financial Sector ◽  
South American ◽  
Panel Regression ◽  
Z Score ◽  
Sustainable Finance ◽  
The Impact

Sustainability risks represent a significant concern for the banking industry. Consequently, financial regulators created financial sector sustainability guidelines and regulations. However, the effect of these policies on banks’ financial stability is unclear. Hence, this study analyzes 149 banks in 17 countries in Latin America to explore the impact of financial sector sustainability guidelines and regulations on the banking industry. We use the Z-Score to measure the financial stability of banks in countries with and without financial sector sustainability guidelines and regulations. Based on panel regression, our results suggest significant differences between banks in countries with and without financial sector sustainability guidelines and regulations. We conclude that sustainable finance regulations promote financial stability as well as sustainable banking practices.

scholarly journals Does Bank Competition Enhance or Hinder Financial Stability? Evidence from Indian Banking

2020 ◽  
Vol 9 (s1) ◽  
pp. 75-102
Author(s):  
Bijoy Rakshit ◽  
Samaresh Bardhan
Keyword(s):  
Commercial Banks ◽  
Financial Stability ◽  
Positive Impact ◽  
Banking System ◽  
Bank Competition ◽  
Z Score ◽  
Dynamic Panel ◽  
Dynamic Panel Model ◽  
Panel Model ◽  
The Impact

AbstractThe primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India. We use a dynamic panel model to examine whether an increase in bank competition hindrances financial stability of commercial banks in India over the period 1996 to 2016. Findings reveal that in India, a higher degree of bank competition is positively associated with the prevalence of non-performing loans. Additionally, the positive impact of the Lerner index on Z-score lends support to competition-fragility hypothesis. However, we argue that both the views of competition-stability and competition-fragility can coexist in a single banking system like India.

scholarly journals The impact of monetary policy and bank competition on banking industry risk: A default analysis

2021 ◽  
Vol 16 (1) ◽  
pp. 205-215
Author(s):  
Sri Ayomi ◽  
Eleonora Sofilda ◽  
Muhammad Zilal Hamzah ◽  
Ari Mulianta Ginting
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Banking Industry ◽  
Negative Impact ◽  
Generalized Method Of Moments ◽  
Dynamic Panel Data ◽  
Probability Of Default ◽  
Bank Competition ◽  
Banking Competition ◽  
The Impact

In the financial system and economy, the banking industry plays a crucial role. Default risk takes central stage in preserving financial stability and needs to be mitigated as it can trigger a crisis. The study examines the combined effects of monetary policy and bank competition on banking defaults. Using a sample of 95 commercial banks in Indonesia between 2009 and 2019, this study employs the Generalized Method of Moments, a two-step dynamic panel-data estimation system, to analyze it. Empirical estimation results show that monetary policy, through an increase in the benchmark interest rate, negatively affects probability of default. The extent of banking stability is also enhanced by monetary policy. Banking competition has a negative and significant effect on probability of default and has a positive effect on the banking distance to default. Furthermore, the combined impact of monetary policy and banking competition positively affects probability of default but has a negative impact on the distance of default. Building on this study, to promote a stable and more efficient banking system, policymakers should develop policies that foster complementary monetary and competition policies.

scholarly journals PENGARUH GOOD CORPORATE GOVERNANCE DAN BIAYA OPERASIONAL DAN PENDAPATAN OPERASIONAL (BOPO) TERHADAP STABILITAS KEUANGAN BANK UMUM SYARIAH DI INDONESIA TAHUN 2012-2017

2018 ◽  
Vol 6 (2) ◽  
pp. 160
Author(s):  
Lucky Nugroho ◽  
Herda Nezzim Bararah
Keyword(s):  
Corporate Governance ◽  
Commercial Banks ◽  
Financial Stability ◽  
Review Literature ◽  
Z Score ◽  
Operating Income ◽  
Good Corporate Governance ◽  
Operational Costs ◽  
Conceptual Paper ◽  
The Impact

This study aims to determine the impact or influence of good corporate governance and efficiency, which in this case the proxy by the ratio of operational costs and operating income to the financial stability of sharia commercial banks. The method in this research is a literature review or conceptual paper. Based on the results and review literature, it is known that the financial stability of sharia banks is a significant factor in maintaining reputation. Good corporate governance, operational costs, and operating income (BOPO) are factors that can support the financial stability of sharia commercial banks and in this study measured by Z-score. Therefore, financial stability in sharia banks should be the focus of the management of sharia commercial banks

scholarly journals How effective have measures by Central Banks been in mitigating the impact of financial crisis

2021 ◽  
Vol 4 (2) ◽  
pp. 76-87
Author(s):  
Ibrahim Rimintsiwa
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Complex Form ◽  
Central Banks ◽  
Important Lesson ◽  
Area Of Interest ◽  
Policy Measures ◽  
The Impact

During the global financial crisis, central banks around the globe implemented a series of unconventional monetary policy measures such as quantitative easing among others to avert the impact of financial crisis on financial system. There exist numerous studies on this area of interest, with each guided by a specific view of the problem and selectively chosen empirical observations with regard to the different developments. This paper reviewed literature to ascertain the effectiveness of conventional monetary policy measures and unconventional monetary measures used in mitigating the impact of the 2007/2008 global financial crisis, specifically by the major central banks including the Federal Reserve, European Central Bank and Bank of England. The study used systematic quantitative assessment technique (SQAT) to determine a high quality of papers that have been reviewed in the study. The result proved that conventional monetary policy measures are still potent to deliver their desired objectives but inadequate in times of acute crisis. Empirical evidences proved that central banks have not practically abandoned the core elements of their pre-crisis monetary policy. Through a complex form of strengthening and reassessment, they have instead complimented, extended and somewhat improved their measures to mitigate the impact of the financial crisis. An important lesson of the crisis is that there is opportunity to reinforce central banks with macro prudential supervision and regulation. This should be seen as complementary to the existing monetary policy measure in order to deliver the twin objectives of price and financial stability.

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