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)

• Main Authors: Braganza, Ozelle A., Lim, Michael Bryan T., Luminarias, Anna Katrina I., Wuthrich, Vanessa G.
• Format: text
• Language: English
• Published: Animo Repository 2007
• Subjects: Banks and banking > Philippines; Loans > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18442
• Institution: De La Salle University

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.