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Article
Publication date: 10 July 2020

Azira Abdul Adzis, Hock Eam Lim, Siew Goh Yeok and Asish Saha

This study investigates factors contributing to residential mortgage loans default by utilizing a unique dataset of borrowers' default data from one of the pioneer lending…

Abstract

Purpose

This study investigates factors contributing to residential mortgage loans default by utilizing a unique dataset of borrowers' default data from one of the pioneer lending institutions in Malaysia that provides home financing to the public. Studies on mortgage loan default have been extensively examined, but limited studies utilize the individual borrower's data, as financial institutions generally hesitant to reveal their customers' data due to confidentiality issue.

Design/methodology/approach

This study uses logistic regression model to analyze 47,158 housing loan borrowers' data for the year 2016.

Findings

The findings suggest that male borrowers, Malay and other type of ethnicity, guarantor availability, loan original balance, loan tenure, loan interest rate and loan-to-value (LTV) ratio are the significant factors that influence mortgage loans default in Malaysia.

Research limitations/implications

Future studies may expand the sample by employing data from other types of financial institutions that would give greater insights as findings might vary due to differences in objectives, functions and regulations. In addition, the findings are subjected to the censoring bias where future studies could perform the survival analysis to control for censoring bias and re-validating the findings of the present study.

Practical implications

The findings provide valuable insights for lending institutions and the government to formulate housing loan policy in Malaysia.

Originality/value

To the best of the authors' knowledge, this is the first study in the context of emerging economies that uses financial institution's internal data to investigate factors of mortgage loan default.

Details

Review of Behavioral Finance, vol. 13 no. 5
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 16 April 2018

Asish Saha, Lim Hock-Eam and Siew Goh Yeok

The purpose of this paper is to empirically assess the efficiency (transaction efficiency, intermediation efficiency and profit efficiency) of the retail branches of a…

Abstract

Purpose

The purpose of this paper is to empirically assess the efficiency (transaction efficiency, intermediation efficiency and profit efficiency) of the retail branches of a large bank and identify the driver parameters of the same.

Design/methodology/approach

The authors use the non-parametric data envelopment analysis approach to analyze the financial performance of 247 branches in 2014, spread over 14 states of a country. After checking for possible misspecification bias, the authors use the fractional regression approach in the second stage of the analysis to assess possible drivers of the efficiency of bank branches in terms of the size of business, funding mix, per employee contribution to business and profit and business per transaction. In addition, the authors included spatial parameters like economic condition and competitive position of branches in their analysis.

Findings

The authors find that on an overall basis, there might be a deliberate initiative of the top management of the bank to over-branch in order to improve the output at the aggregate level which is above the level of cost minimization. The study clearly indicates to the top management that low-cost deposit is a significant driver of branch efficiency apart from business per transaction, income per employee. Moreover, it is found that branches located in areas of high branch concentration are more efficient, and local economic condition does drive efficiency of branches.

Practical implications

The authors address the dilemma faced by the top management of banks in arriving at an appropriate scientific benchmark to assess the performance of branches based on the drivers of efficiency and initiate suitable strategic interventions to improve their efficiency.

Originality/value

The integrated assessment of the efficiency of bank branches and arriving at the drivers of efficiency using the fractional regression model framework are likely to prove beneficial in the benchmarking exercise of the performance of bank branches.

Details

International Journal of Emerging Markets, vol. 13 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 15 March 2022

Asish Saha, Lim Hock Eam and Siew Goh Yeok

The purpose of this paper is to examine the drivers of default in the Malaysian housing market in the light of various policy interventions by the country’s central bank…

Abstract

Purpose

The purpose of this paper is to examine the drivers of default in the Malaysian housing market in the light of various policy interventions by the country’s central bank, and the government’s expressed concern to ensure balanced growth in the market. This paper assesses the importance of considering the endogeneity of loan-to-value (LTV) in predicting housing loan default and its implications.

Design/methodology/approach

In this paper, the author addresses the endogeneity problem in the LTV variable using two instrumental variables (IV) in this probit regression: national residential property gains tax and the statutory reserve ratio of Bank Negara Malaysia. This study uses the instrumental variable probit model to consider endogeneity bias. This study assumes a latent (unobservable) variable (Y*), representing a borrower’s tendency to default, which is associated linearly with the borrower’s and loan characteristics and other variables (Xi). This study uses individual borrower-level information of 43,156 housing loan borrowers from the files of a well-established housing bank in Malaysia.

Findings

This study’s results confirm that endogeneity causes a substantial difference in the magnitude of the estimated effects of LTV on the default tendency. At the lower values of LTV, the probability of default is over-estimated, and at the higher values, the default probability is substantially underestimated. Endogeneity bias also affects the estimated coefficients of loan and borrower characteristics. The authors find that the interest rate is less relevant in predicting loan default. Other loan characteristics, such as loan age, tenure, payment amount and the built-up area, are relevant. This study’s result confirms that the borrower’s location matters, and an increase in state gross domestic product per capita and an increase in the supply of residential units reduce default probability.

Research limitations/implications

The present study did not explore the applicability of the “equity theory of default” in the Malaysian housing market. This study did not assess “strategic default” issues and the effect of borrowers’ characteristics, personality traits and self-control of Malaysian housing loan borrowers in the mortgage decision-making process. The evolving dynamics of the Malaysian housing market microstructure in property valuation remained unexplored in the present study.

Practical implications

The findings have crucial relevance in the decision-making process of commercial banks, the central bank and the government to frame policies to foster balanced growth and development in the housing market. The authors argue that striking a subtle balance between the concerns of financial stability and productive risk-taking by commercial banks in Malaysia remains a continuing challenge for the country’s central bank. The authors also argue that designing suitable taxation policies by the government can deliver its cherished goal of balanced development in the housing market.

Originality/value

Empirical research on the Malaysian housing market based on micro-level data is scarce due to a paucity of relevant data. This study is based on the individual borrower-level information of 43,156 housing loan borrowers from the files of a well-established housing bank in Malaysia. In this analysis, the authors find clear evidence of endogeneity in LTV and argue that any attempts to decipher the default drivers of housing loans without addressing the issue of endogeneity may lead to faulty interpretation. Therefore, this study is unique in recognizing endogeneity and has gone deeper in identifying the default drivers in the Malaysian housing market not addressed by earlier papers.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

Keywords

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