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Loss Given Default for residential real estate banks: Evidence from the Euro area

Author

Listed:
  • Claudio Giannotti
  • Gianluca Mattarocci
  • Xenia Scimone

Abstract

Loss given default (LGD) for residential real estate loans is affected by real estate market trends due to the impact on the value of debtors’ main collateral. Banks specialised in real estate lending are expected to be better at selecting lending opportunities, properly evaluating real estate collaterals, and managing the recovery process. The recovery process is expected to differ for specialised lenders but there is no consensus about their differences from other market players.The paper examines LGD for a representative sample of European banks to underline the key differences related to real estate specialisation. Results show that real estate banks, on average, perform a better recovery process. Moreover, real estate banks not fully specialised in real estate can better manage the real estate market cycle effect, reducing the pro-cyclicality of LGD.

Suggested Citation

  • Claudio Giannotti & Gianluca Mattarocci & Xenia Scimone, 2017. "Loss Given Default for residential real estate banks: Evidence from the Euro area," ERES eres2017_130, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2017_130
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    More about this item

    Keywords

    Lending; Loss Given Default; Real estate banks; Real Estate Market;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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