Macroprudential Policies, Credit Guarantee Schemes and Commercial Loans: Lending Decisions of Banks

We study the effect of two counter-cyclical credit policies on banks’ lending decisions using a unique matched bank-firm-loan micro level data. These two policy actions; the implementation of commercial real estate loan-to-value (LTV) ratio and an expansion of a collateral guarantee scheme, stand out as they give banks the freedom of choice over which customers would be subject to the policy and to what degree. When faced with a tightening LTV policy banks elect to issue loans above the LTV cap to firms with better credit history and with whom they had a longer established relationship while charging higher interest rates. Firms constrained by the policy see an increase in their other borrowing while the policy is in effect, suggesting the existence of credit spillover across loan types. In the second policy, banks again prefer firms with healthier credit histories and with whom they have a longer relationship into the credit guarantee scheme. In contrast to the existing literature, we do not see a preference for riskier firms under the scheme. At the same time, among the recipients of scheme loans, those with stronger relationships but relatively lower past credit performance have larger amounts of loans. Scheme loans are issued for larger amounts, longer periods and at higher interest rates compared to loans issued to non-participating firms during the same period. Finally, we show that the increase in scheme utilization has resulted in lower other corporate credit and general-purpose loans in banks with larger utilization rates.