Loan-to-value policy: evidence from Turkish dual banking system

Burak Pirgaip and Ali Hepsen

International Journal of Islamic and Middle Eastern Finance and Management, 2018, vol. 11, issue 4, 631-649

Abstract: Purpose - This paper aims to answer how effective the loan-to-value (LTV) regulation has been since 2011 for conventional and Islamic (participation) banks in Turkey in terms of curbing mortgage loan growth and delinquency[1]. Design/methodology/approach - The authors first use unit root tests and tests of difference in loan and property price data in pre-LTV and post-LTV period. Second, the authors follow Chow test and ordinary least squares regression analyses to test for a structural break when sensitivity of mortgage loan and delinquency growth changes to property price changes considered. Findings - The authors find that two periods are statistically different, while the significance level is lower for Islamic banks. Moreover, loan growth has become less responsive to property price increases; delinquency sensitivity to property price changes has significantly increased in the post-LTV period for conventional banks, while this is not the case for Islamic (participation) banks. Originality/value - This paper not only increases empirical evidence regarding the effectiveness of LTV ratio policy but also fills the gap in the literature by providing a comparison between conventional banks and Islamic (participation) banks.

Keywords: Turkey; Islamic banks; Conventional banks; Macroprudential policy; Loan-to-value (LTV) ratio (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-08-2017-0208

DOI: 10.1108/IMEFM-08-2017-0208

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