Measuring the Impact of Higher Capital Requirement to Bank Lending Rate and Credit Risk: The Case of Southeast Asian Countries

This study discusses the impact of increasing bank capital against lending interest rate, amount of loans, and banks' credit risk exposure. The study utilized panel data from 18 top banks in 5 Southeast Asian countries during the period of 2008-2015. The findings show that there is no significant relationship between capital increase and lending interest rate in Southeast Asia. This is due to lending interest rate movement was driven mostly from banks' cost structure, rather than capital charge. Although lending interest rate has significant relationship with amount of loans, there are no transmitted impact of the capital increase to the economy. The study also found that bank capital level has positive relationship with credit risk which indicates that level of bank capital serves as a buffer against credit risk.