An analysis on the level of moral hazard-induced lending behavior of selected Philippine universal banks before and after the enactment of the Special Purpose Vehicle Act of 2002 (R.A. 9182)

Date of Publication

2007

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Andrew Adrian Yu Pua

Defense Panel Chair

Alfredo M. Santoyo

Defense Panel Member

Michael Ricafort
Joel Bangalan

Abstract/Summary

After the Asian financial crisis, the Philippines started to have severe non-performing loan (NPL) problems. To address this problem, special purpose vehicles (SPVs) were established in 2002 for the purpose of decreasing the country's NPL ratio (Feng, et al, 2006).

In a research made by Hagiwara and Pasadilla (2005) about the negligent lending of banks engaging in SPV services in Thailand, it was said that SPVs increase moral hazard in the lending behavior of banks because the removal of NPLs from the banks' books, especially if done at minimal cost to banks, could induce the latter to continue the same practice of rekcless lending that led to the bad loans problem. It was also said that the moral hazard-induced bank lending resulted in creating more new NPLs in Thailand.

This paper examined if the enactment of SPV Act of 2002 increased the moral hazard-induced lending behavior of banks using the same methods as that of Hagiwara and Pasadilla (2005). After existing literatures were reviewed and several statistical tests were made, the group was able to conclude that the creation of SPVs significantly contributes to the movements in the moral hazard-induced lending behavior of banks that frequently participated in the SPV process (PBI, RCBC, MBTC, UCPB). These banks had the most number of SPV transactions. It was evident that after the enactment of R.A. 9182, every increase in the moral hazard loans entails a significant increase in these banks' new NPL ratios. Banks, having been able to get rid of their bad loans as often, can perpetuate moral hazard-induced lending since they could have the tendency of being lenient with their lending since they could have the option of availing the benefits of the SPV Act.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU21859

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

113 leaves : illustrations (some color)

Keywords

Banks and banking--Philippines; Loans--Philippines

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