Commercial property prices and bank performance
AbstractWe seek to assess the effect of commercial property price movements on the behaviour and performance of individual banks in a range of industrialised economies, extending the existing micro literature on bank performance. Our results suggest that commercial property prices tend to be positively associated with bank lending and profitability, and negatively associated with banks' net interest margin and bad loan ratios. Such an impact exists even when conventional independent variables determining bank performance are included as controls. Further extensions show that the magnitude of this impact is related to the size of the bank, the strength of bank capitalisation, the direction of commercial property price movements, and regional factors. The results have implications for risk managers, regulators and monetary policy makers. Notably, they underline the crucial relevance of commercial property prices as a macroprudential variable that warrants close scrutiny by the authorities.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 175.
Length: 37 pages
Date of creation: Apr 2005
Date of revision:
commercial property prices; bank performance; panel estimation; financial accelerator;
Other versions of this item:
- E Philip Davis & Haibin Zhu, 2004. "Commercial property prices and bank performance," Economics and Finance Discussion Papers 04-19, Economics and Finance Section, School of Social Sciences, Brunel University.
- E Philip DaviS & Haibin Zhu, 2004. "Commercial property prices and bank performance," Public Policy Discussion Papers 04-19, Economics and Finance Section, School of Social Sciences, Brunel University.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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