Loan-to-Value Caps, Bank Lending, and Spillover to General-Purpose Loans

Selva Bahar Baziki and Tanju Capacioglu

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: This paper studies the effect of the introduction of and a subsequent easing in residential credit loan-to-value (LTV) ratio caps on bank lending and borrowers' loan usage with a unique and comprehensive bank-linked individual credit data set in a large emerging economy. We first show that following the introduction of an LTV cap, banks that were previously lending at rates above the limit have reduced residential lending, as targeted by the policy. We find that banks change their balance sheet composition as a response, replacing the reduction in residential lending with higher commercial loans and general-purpose loans issued to new residential borrowers.

Keywords: Loan to value ratio; Credit risk; Housing loans; General-purpose loans; Credit spillover (search for similar items in EconPapers)
JEL-codes: E51 E58 G20 G21 G28 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-isf, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2123

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