Assessing the Impact of Microprudential Policy towards Household Loan Deliquency

This study examines the impact of Monetary Policy (OPR) and other macroeconomic factors, including Unemployment Rate, Household Income, and Household Expenditure, on loan delinquencies, as measured by the Non-Performing Loan to Total Banks’ Loan ratio. Using a static panel data model, we investigate the effects of monetary policy on delinquent borrowers. The Breusch-Pagan Lagrange Multiplier (LM) and Hausman (1978) tests are used to selecting the most efficient and consistent static panel regression model. Our findings indicate a significant positive correlation between OPR and Unemployment with loan delinquencies. Additionally, we discovered that Household Income is significantly and negatively associated with loan delinquencies in commercial banks. This study highlights the positive relationship between loan delinquencies and macroeconomic factors, such as unemployment and OPR, in commercial banks and how these macroeconomic factors adversely impact loan delinquencies. Ultimately, this research presents evidence of the impacts of Unemployment, Household Income, and Overnight Policy Rate (OPR) on loan delinquencies.