A study on the effects of capital requirements and economic activity to bank loans in the Philippines from 1998-2003

The loans extended by banks to its corporate and individual clients have been affected by supply and demand factors. Aside from this fact, capital requirements particularly those set by the Basel Capital Accord I has been affecting the changes in the loans. The paper examines the effect of the imposition of minimum capital requirements to the movement of loans extended by banks in the Philippines, a developing country. The differences of the banks reaction from a developed and a developing world were also reviewed. It was found in the study that while capital requirements proved to have a significant effect in developing economies, the study for the Philippine setting proved otherwise. In addition, it discussed whether economic activity such as employment and Gross Domestic Product affect loan movements particularly in the rural banks. The results of the study revealed that GDP and employment growth did not affect bank loans in the Philippines in the periods covered by the study. A reason for this could be that people can borrow outside of the area in which they reside, and therefore, even if employment level is high in a certain region, it doesn\u27t necessarily lead to more customers getting loans in that area. Other reasons for these are mentioned in the paper