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Loan-to-Value Policy: Evidence From Turkish Dual Banking System

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2018

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Emerald Group Publishing LTD

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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.

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Turkey, Islamic Banks, Conventional Banks, Macroprudential Policy, Loan-to-Value (LTV) Ratio

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Citation

Pirgaip, Burak; Hepsen, Ali, "Loan-to-Value Policy: Evidence From Turkish Dual Banking System", International Journal of Islamic and Middle Eastern Finance and Management, 11, No. 4, pp. 631-649, (2018).

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Source

International Journal of Islamic and Middle Eastern Finance and Management

Volume

11

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4

Start Page

631

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649