Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

28 Pages Posted: 25 Jun 2015

See all articles by Peter Morgan

Peter Morgan

ADBI

Paulo Regis

Xi'an Jiaotong University (XJTU)

Nimesh Salike

Xi'an Jiaotong University (XJTU)

Date Written: June 24, 2015

Abstract

Credit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in 10 Asian economies. It uses estimation techniques to deal with the large presence of outliers in the data. Robust-to-outlier estimations show that economies with LTV polices have expanded residential mortgage loans by 6.7% per year, while non-LTV economies have expanded by 14.6%, which suggests LTV policies have been effective.

Keywords: loan-to-value policy, residential mortgage loans, macroprudential policy, financial risk

JEL Classification: C23, E58, G21, G28

Suggested Citation

Morgan, Peter J. and Regis, Paulo and Salike, Nimesh, Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia (June 24, 2015). ADBI Working Paper 528, Available at SSRN: https://ssrn.com/abstract=2622433 or http://dx.doi.org/10.2139/ssrn.2622433

Peter J. Morgan (Contact Author)

ADBI ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Paulo Regis

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Dushu Lake Higher Education Town
Suzhou, Jiangsu Province 215123
China

Nimesh Salike

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Dushu Lake Higher Education Town
Suzhou, Jiangsu Province 215123
China

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