Influence of real estate prices on domestic bank loans in Southeast Asia

Authors


  • Masahiro Inoguchi, Associate Professor, Kyoto Sangyo University, Kamigamo-Motoyama, Kita-ku, Kyoto, Japan.

  • I am grateful for the helpful comments of Juro Teranishi, Masaharu Hanazaki, Ryuzo Miyao, Fumiharu Mieno, Daiji Kawaguchi, Hiroshi Gunji, Kazumine Kondo, Nobuyoshi Yamori, Yosuke Takeda, an anonymous referee and the participants of the Modern Monetary Economics Conference 2006 in Kobe, the Japanese Economic Association meeting in May 2007 and the 11th international convention 2008 of East Asian Economic Association in Manila. All errors in the paper are solely mine. This research was supported in part by the Ministry of Education, Culture, Sports, Science and Technology: Grant-in-Aid for Scientific Research of Young Scientists.

Abstract

This study examines whether and how fluctuations in real estate prices affected bank lending in Malaysia, Singapore, and Thailand before and after the 1997–98 Asian financial crisis. Since the crisis, it has been claimed that the rise and fall in the price of real estate, which is used as collateral, affected bank lending and the macroeconomy in these Southeast Asian countries. The study implements a dynamic model of bank lending and employs a test using the panel data of domestic bank balance sheets in order to estimate the influence of real estate prices on new bank lending in the three countries. The study also examines the conditions surrounding the role of real estate as collateral for bank loans in the countries. The regression results suggest that fluctuations in real estate prices can influence domestic bank lending and did so, especially after the crisis in Singapore and Thailand, and that domestic bank lending behaviour in these countries changed after the crisis.

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