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BSP WPS 2020-04: Do Prudential Regulations Affect Bank Lending Rates? Insights from Philippine Banks Using an Accounting-Based Approach

The lessons brought by the global financial crisis necessitated a comprehensive package of banking reforms designed, among others, to improve the ability of bank capital to absorb losses, maintain liquidity buffer to weather liquidity stress events and promote financial stability. Using di Baise (2012) main approach, this study analyzes the impact of such reforms on the Philippine bank lending rates by calibrating general accounting equations framing the banks’ balance sheet and income statement structures. Under the simplifying assumptions, the impact on lending rates of adjustments in banks’ capital and liquidity standards are found to be marginal. This finding indicates that banks are rebalancing the structure of their portfolio following the adoption of prudential regulations.

Bangko Sentral ng Pilipinas
Authors Keywords
Talabong, Zernan, C.; bank lending rates, prudential regulations, accounting-based approach;
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