Monetary policy, bank ownership, and the lending channel: Evidence from ASEAN

Sahul Hamid, Fazelina; Muhamed, Zulkhibri

Abstract

This paper examines the effectiveness of bank lending channels in ASEAN countries. The main objective of this paper is to identify whether the effectiveness of banklending channels in ASEAN differs based on the countries’ financial structure, banks’ fundamentals and ownership type. The study makes use of unbalanced panel data of 214 commercial banks in nine ASEAN countries for the period from 2001 to 2015. Analysis using dynamic GMM estimators finds that the bank lending channel is more effective in CLMV countries which have a less-developed financial sector compared to ASEAN-5 countries which have a more developed financial sector. Particularly, we find that smaller banks with less liquidity have a broader scope to expand their financing portfolios when interest rates rise. We also find that foreign banks in ASEAN-5 countries and state-owned banks in ASEAN countries weaken the effect of monetary policy transmissions. However, local banks are vulnerable to changes in monetary policy. Further analyses confirm that the influence of ownership structure on credit growth is partly driven by the differences in the banks’ specific characteristics. Our findings suggest that the effectiveness of bank lending channel depends on financial structure, bank fundamentals and ownership structure. The regulators need to take this into account to ensure that the changes in monetary policy achieve the desired objectives.

• Journal Article Type: Article
• Acceptance Date: Dec 19, 2018
• Publication Date: Oct 9, 2019
• Deposit Date: Jan 26, 2023
• Publicly Available Date: Jan 26, 2023
• Journal: Institutions and Economies
• Print ISSN: 2232-1640
• Electronic ISSN: 2232-1349
• Peer Reviewed: Peer Reviewed
• Volume: 11
• Issue: 4
• Pages: 1-29
• Keywords: Bank lending channel; monetary policy; ownership; ASEAN; GMM
• Public URL: https://uwe-repository.worktribe.com/output/10307896
• Publisher URL: https://ijie.um.edu.my/index.php/ijie/article/view/19660