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Bank credit risks and house prices revisited

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  • Ye, Linlin
  • Pan, Dongliang
  • Li, Zonghan

Abstract

This paper revisits the nexus between house prices and bank credit risk, taking advantage of a novel dataset of Chinese property listings. We extend the standard Pooled Mean Group (PMG) estimator by incorporating spatial-lag terms to overcome the spatial autocorrelation issues that previous literature may overlook. Our results show that house price deviations from fundamentals (HPD) significantly affect bank credit risk: a one-unit increase in lagged HPD raises the non-performing loan ratio by 1.69 percentage points, while the contemporaneous effect becomes insignificant. Moreover, we find that the spatial lag of HPD also exhibits a significant positive impact on credit risk, with a one-unit increase in spatially-lagged HPD raising the non-performing loan ratio by 1.01 percentage points, demonstrating that housing market bubbles in neighboring cities substantially affect the credit risks of local banks.

Suggested Citation

  • Ye, Linlin & Pan, Dongliang & Li, Zonghan, 2025. "Bank credit risks and house prices revisited," Finance Research Letters, Elsevier, vol. 85(PB).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pb:s1544612325011602
    DOI: 10.1016/j.frl.2025.107902
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    References listed on IDEAS

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