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Estimating Credit Demand in Croatia
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![Page 1: Estimating Credit Demand in Croatia](https://reader036.fdocuments.in/reader036/viewer/2022062517/56813925550346895da0cbeb/html5/thumbnails/1.jpg)
Estimating Credit Demand in Croatia
Katja Gattin-Turkalj, Igor Ljubaj,Ana Martinis, Marko Mrkalj
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Overview of the Presentation
1. Credit developments in Croatia
2. The econometric model
Total loans to the private sector
Household loans
3. Concluding remarks
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Motivation
GDP growth increases demand for loans via income effect and via wealth effect
improving overall economic conditions, growing optimism by consumers and enterprises and
sharp decline of interest rates, real convergence…
Transition of the financial sector
towards the end of 1990’s …
predominantly supply side effects
demand factors gained greater
importance
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Three phases of banks’ loan developments
and the CNB responses
-10
0
10
20
30
40
50
1/9
7
1/9
8
1/9
9
1/0
0
1/0
1
1/0
2
1/0
3
1/0
4
1/0
5
1/0
6
1/0
7
%
Total Loans (yoy growth rate)
"16%"
"12%"
MR fx liquidity (35-32%)
MRR
24%
55%
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Decline of interest rates contributed to credit growth
0
5
10
15
20
251
/97
8/9
7
3/9
8
10
/98
5/9
9
12
/99
7/0
0
2/0
1
9/0
1
4/0
2
11
/02
6/0
3
1/0
4
8/0
4
3/0
5
10
/05
5/0
6
12
/06
%
Short-term corporate loans without a currency clause
Short-term household loans without a currency clause
Long-term corporate loans with a currency clause
Long-term household loans with a currency clause
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Loans to households driven by housing loans…
0
5
10
15
20
25
30
35
40
453/
05
5/05
7/05
9/05
11/0
5
1/06
3/06
5/06
7/06
9/06
11/0
6
1/07
%
Total credits to households Housing loansCredits for motor vehicles Credits on credit cardOther credits to households
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Increasing role of housing loans highlights the risks associated with
house price developments
90
100
110
120
130
140
150
H1
/97
H2
/97
H1
/98
H2
/98
H1
/99
H2
/99
H1
/00
H2
/00
H1
/01
H2
/01
H1
/02
H2
/02
H1
/03
H2
/03
H1
/04
H2
/04
H1
/05
H2
/05
H1
/06
50
150
250
350
450
550
House price index - left Housing loans - right
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2. Loans to the private sector - the model
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Loans and GDP (gaps) exhibit a high degree of correlation
-3
-2
-1
0
1
2
3
4
5
Q1
/97
Q3
/97
Q1
/98
Q3
/98
Q1
/99
Q3
/99
Q1
/00
Q3
/00
Q1
/01
Q3
/01
Q1
/02
Q3
/02
Q1
/03
Q3
/03
Q1
/04
Q3
/04
Q1
/05
Q3
/05
Q1
/06
Q3
/06
Q1
/07
GDP_GAP LOANS_GAP
),( irgdpfloans
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ADF and PP tests
Variable
GDP 0,046 -2,091 0,27 -1,896
d(GDP) -8,317*** -8,348*** -8,317*** -8,434***
IR -2,025 -1,510 -2,897* -1,402
d(IR) -7,161*** -7,521*** -7,161*** -7,455***
LOANS 1,835 -4,908*** -0,297 -1,888
d(LOANS) -2,714* -4,705*** -2,815* -2,763
*denotes rejection of unit root null hypothesis at 10% significance level, ** at 5% significance level,
*** at 1 % significance level
ADF PP
ConstantConstant and
trendConstant
Constant and trend
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The model – baseline equation
itt irYloans 210 loglog -0.06 3.09 -
8.75 (-1.29) ***(5.05)
***(-3.52)
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GDP coefficient is in line with other studies
Baseline result of GDP elasticity of 3.09
Calza et al. (2001): 1.34 (eurozone) Calza et al. (2003): 1.60 (eurozone) Hofmann (2001): between 1.04 and 2.49 (16 industrial countries) Hülsewig et al. (2001): 1.11 (Germany) Brzoza-Brzezina (2005): between 1.45 and 3.39 (six European countries)
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IR coefficients seem to vary more…
Baseline result of real interest rate elasticity of -8.75
Calza et al. (2001): -1.01 (eurozone) Calza et al. (2003): -5.05 (eurozone) Hofmann (2001): between -0.01 and -0.08(16 industrial countries) Hülsewig et al. (2001): -0.69 (Germany) Brzoza-Brzezina (2005): between -4.42 and -10.81 (six European countries)
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Bootstrapping… method
11101 xy
22102 xy
33103 xy
44104 xy
............................
11101 nnn xy
nnn xy 10
1101 xy 2
2102 xy 1n
3103 xy 2
4104 xy 3
............................... 1101 nn xy 1
nn xy 10 n
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Bootstrapping… results for β1
Empirical Distribution of Coefficient Beta1
0
50
100
150
200
250
300
350
400
450
500
Coefficient beta1
Nu
mb
er
of
ob
se
rva
tio
ns
3.09
p<0,05
mean = 3.06
p<0,05
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Bootstrapping… results for β2
Empirical Distribution of Coefficient Beta2
0
50
100
150
200
250
300
350
-2,3
8-2
,03
-1,88
-1,72
-1,58
-1,4
2-1
,28-1
,13-9
,73-8
,25
-6,76
-5,25
-3,76
-2,26 0,
000,
002,
213,
716,
95
Coefficient beta2
Nu
mb
er
of
obse
rvat
ions
- 8.75
p<0.05
m ean = - 8.28
p<0.05
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Extensions of baseline specification
Eq. 1 Eq. 2 Eq. 3 Eq. 4 Eq. 5 Eq. 6 Eq. 7 Eq. 8 Eq. 9 Eq. 10 Eq. 11 Eq. 12
(t-stat)Constant -0,06 -0,03 -0,07 -0,02 -0.11 *** -0,05 ** -0,09 -0.08 *** -0,04 0,00 -0,05 -0,01
(-1.29) (-1.97) (-1.56) (-1.33) (-2.10) (-2.17) (-1.46) (-4.33) (-0.92) (-0.32) (-1.07) (-0.43)Loans(-1) 0,76 *** 0,79 *** 0,75 *** 0,83 *** 0,79 *** 0,81 ***
(-13.05) (12.92) (12.7) (17.8) -20 (18.82)GDP 3,09*** 1.3 *** 3,08 *** 1,15 *** 3,34 *** 1,41 *** 3.20 *** 1,26 *** 2,75 *** 0,48 *** 2,95 *** 0,49 *
(5.05) (4.77) (5.24) (3.95) (5.49) (4.80) (4.98) (5.74) (3.60) (2.12) (3.84) (1.99)Interest rate -8,75*** -1.79 -7.59 ***-1.89* -8.36 *** -1,84 -7.81 *** -2.64 *** -8.91 *** -1.82 *** -8.83 ** -1.74 **
(-3.52) (-1.64) (-3.08) (-1.75) (-3.46) (-1.69) (-3.08) (-3.20) (-3.55) (-2.48) (-3.48) (-2.22)Trend 0,06 * -0,03 0,04 -0.15 ***
(1.90) (-1.32) (0.75) (-4.96)CPI 1.27* 0,32 0,57 2,02 ***
(1.80) (1.01) (0.48) (4.85)Exchange -0,51 -1.09 ***rate kuna/USD (-0.75) (-6.11)Exchange -0,22 -1.04 ***rate kuna/euro (-0.32) (-5.38)Number of obs. 35 34 35 34 35 34 35 34 35 34 35 34Adjusted R2
0,43 0,91 0,47 0,91 0,47 0,91 0,46 0,95 0,42 0,96 0,47 0,96AIC -2,07 -3,94 -2,12 -3,93 -2,11 -3,91 -2,07 -4,49 -2,03 -4,71 -2,01 -4,57Schwarz -1,93 -3,76 -1,94 -3,71 -1,93 -3,69 -1,85 -4,22 -1,85 -4,48 1,83 -4,35F-Statistic 13,88 ##### 11,20 83,39 10,97 81,62 8,25 ##### 9,32 ##### 9,03 #####Probabilty 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Equations Variables
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Standardized residuals of equations 1 through 12
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq.1 : GDP IR
-.08
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq.2 : LOANS (-1) GDP IR
-.2
-.1
.0
.1
.2
97 98 99 00 01 02 03 04 05 06
Eq.3: GDP IR Z
-.08
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 4: LOANS(-1) GDP IR Z
-.20
-.15
-.10
-.05
.00
.05
.10
.15
.20
97 98 99 00 01 02 03 04 05 06
Eq. 5: GDP IR CPI
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 6: LOANS(-1) GDP IR CPI
-.2
-.1
.0
.1
.2
97 98 99 00 01 02 03 04 05 06
Eq. 7: GDP Z CPI
-.04
-.03
-.02
-.01
.00
.01
.02
.03
.04
.05
97 98 99 00 01 02 03 04 05 06
Eq.8: LOANS(-1) GDP IR Z CPI
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq. 9: GDP IR USD
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq.10: LOANS(-1) GDP IR USD
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq.11: GDP IR EUR
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 12: LOANS(-1) GDP IR EUR
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Standardized residuals of equations 1 through 4
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq.1 : GDP IR
-.08
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq.2 : LOANS (-1) GDP IR
-.2
-.1
.0
.1
.2
97 98 99 00 01 02 03 04 05 06
Eq.3: GDP IR Z
-.08
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 4: LOANS(-1) GDP IR Z
-.20
-.15
-.10
-.05
.00
.05
.10
.15
.20
97 98 99 00 01 02 03 04 05 06
Eq. 5: GDP IR CPI
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 6: LOANS(-1) GDP IR CPI
-.2
-.1
.0
.1
.2
97 98 99 00 01 02 03 04 05 06
Eq. 7: GDP Z CPI
-.04
-.03
-.02
-.01
.00
.01
.02
.03
.04
.05
97 98 99 00 01 02 03 04 05 06
Eq.8: LOANS(-1) GDP IR Z CPI
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq. 9: GDP IR USD
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq.10: LOANS(-1) GDP IR USD
-.2
-.1
.0
.1
.2
.3
97 98 99 00 01 02 03 04 05 06
Eq.11: GDP IR EUR
-.06
-.04
-.02
.00
.02
.04
.06
97 98 99 00 01 02 03 04 05 06
Eq. 12: LOANS(-1) GDP IR EUR
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Extensions of baseline spec.: Eq. 1 to 6
Eq. 1
(t-stat)
Constant -0.06
(-1.29)
Loans(-1)
(-13.05)
GDP 3.09 ***
(5.05)
Interest rate -8.75 ***
(-3.52)
Trend
CPI
Eqations Variables
Eq. 5
-0.11 ***
(-2.10)
3.34 ***
(5.49)
-8.36 ***
(-3.46)
1.27*
(1.80)
Eq. 6
-0.05 **
(-2.17)
0.75 ***
(12.7)
1.41 ***
(4.80)
-1.84
(-1.69)
0.32
(1.01)
Eq. 2
-0.03
(-1.97)
0.76 ***
(-13.05)
1.3 ***
(4.77)
-1.79
(-1.64)
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Standard specification tests
Autocorrelation: introducing persistence through lagged dependent variable, improves the fit, although residuals remain "noisy"
Variance inflation factor=1.3 ΔlogYt = β0 + β1Δirt + εi
1/(1 – R2) Test for omitted variables was done for all variables other
than baseline regressors to test the explanatory power of the additional
loanst-1 (Ho: not omitted rejected at 1%), the trend variable z (Ho rejected at 5%), CPI (Ho rejected at 10% significance), and exchange rate (Ho not rejected)
AIC and Schwartz criterion, systematically favor more parsimonious specifications
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Recursive coefficients of equation loans =-0.06 + 3.09*gdp+(-8.75)*ir
-.8
-.6
-.4
-.2
.0
.2
.4
.6
2000 2001 2002 2003 2004 2005 2006
Recursive C(1) Estimates± 2 S.E.
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006
Recursive C(2) Estimates± 2 S.E.
-50
-40
-30
-20
-10
0
10
20
2000 2001 2002 2003 2004 2005 2006
Recursive C(3) Estimates± 2 S.E.
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Results:
the baseline specification seem to satisfactory explain the observed developments of credit;
the extension of the baseline equation, did not significantly change the results
credit growth during the lending boom of the late 1990's and in 2006 remains above the fitted line in all specifications and during the recession that followed the first lending boom credit plunged well below the fitted line;
inclusion of the lagged dependent variable "smoothes" the curve and improves the fit, but even then actual growth remains slightly above the fitted line until 1998Q1 and in 2006.
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Results:Loans (yearly growth rates) - baseline
specification
-.2
-.1
.0
.1
.2
.3
-.1
.0
.1
.2
.3
.4
98 99 00 01 02 03 04 05 06
Residual Actual Fitted
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3. Household loans - the model
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Correlation between household loans and explanatory variables
Interest rate_H Consumption Wages House prices Loans(-1)
4log -0.48 0.32 -0.44 -0.13 0.92
log -0.98 0.94 0.96 0.86 0.99Loans to
households
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Wages seem to move in the opposite direction from loans…
Wage and households loans gaps (normalized)
-4
-3
-2
-1
0
1
2
3
Q1
/97
Q4
/97
Q3
/98
Q2
/99
Q1
/00
Q4
/00
Q3
/01
Q2
/02
Q1
/03
Q4
/03
Q3
/04
Q2
/05
Q1
/06
Q4
/06
Loans to Households Wages
![Page 28: Estimating Credit Demand in Croatia](https://reader036.fdocuments.in/reader036/viewer/2022062517/56813925550346895da0cbeb/html5/thumbnails/28.jpg)
…as well as house price index - possibly due to low data frequency
YoY growth rates of house prices and household loans (normalized)
-3
-2
-1
0
1
2
3
4
Q1
/98
Q4
/98
Q3
/99
Q2
/00
Q1
/01
Q4
/01
Q3
/02
Q2
/03
Q1
/04
Q4
/04
Q3
/05
Q2
/06
House price index Loans to households
![Page 29: Estimating Credit Demand in Croatia](https://reader036.fdocuments.in/reader036/viewer/2022062517/56813925550346895da0cbeb/html5/thumbnails/29.jpg)
Equations for household loansEq. 1_h Eq. 2_h Eq. 3_h Eq. 4_h Eq. 5_h Eq. 6_h Eq. 7_h Eq. 8_h
(t-stat)
0.15 *** 0.00 0.19 *** 0.00 0.16 *** 0.06 *** 0.25 *** 0.07 ***
(3.79) (-0.02) (4.38) (-0.29) (2.91) (3.82) (3.90) (3.31)
Loans to 0.83 *** 0.83 *** 0.78 *** 0.77 ***
households (-1) (21.68) (20.42) -17.89 (16.55)Interest rates on -11.11 *** -0.46 -7.67 *** -0.51 -10.52 *** -1.88 * -6.67 * -1.70
loans to households (-2.87) (-0.49) (-2.13) (0.59) (-2.87) (-1.79) (-1.95) (-1.54)
-0.21 0.87 *** 0.06 0.87 ***
(-0.35) (6.12) (0.11) -5.90
-0.20 -0.90 *** -0.93 -0.99 ***
(-0.25) (-4.15) (-1.20) (-4.08)
-0.58 0.06 -0.78 -0.11(-1.28) (0.48) (-1.66) (-0.74)
Number of obs. 35 34 35 34 35 34 35 34
Adjusted R20,16 0.95 0,15 0.94 0,16 0,92 0,19 0,92
AIC -1.32 -4.33 -1.53 -4.24 -1.35 -3.99 -1.58 -3.9
Schwarz -1.19 -4.15 -1.35 -4.01 -1.22 -3.82 1,40 -3.67
F-Statistic 4.32 194.00 2.84 136.89 4.41 135.78 3.45 95.45
Probabilty 0.02 0.00 0.06 0.00 0.02 0.00 0.03 0.00
Equations Variables
House price index
Bas
elin
e re
gres
sors
Constant
Consumption
Wages
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Concluding remarks
the behavior of loans can be explained mainly by the developments of real GDP and real interest rates
GDP captures most important forces behind the loan demand
somewhat unexpectedly, house price index did not contribute to explaining household credit demand
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Q?