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Banking System, Real Estate Markets, and Nonperforming Loans



This paper examines the link between nonperforming loans, real estate prices, and the banking system. We found that the level of nonperforming loans affects bank profitability as well as the price performance of real estate markets. We also analyzed the factors that cause the ratio of nonperforming loans to total loans to fluctuate. We observed that a higher ratio of corporateloans to individual loans results in a lower percentage of nonperforming loans. In contrast, a lower real estate lending rate relative to the primary lending rate leads to a higher percentage of nonperforming loans. These results suggest that the percentage of nonperforming loans can be partially governed by the lending practices of banks.

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  • Wen-Chieh Wu & Chin-Oh Chang & Zekiye Selvili, 2003. "Banking System, Real Estate Markets, and Nonperforming Loans," International Real Estate Review, Asian Real Estate Society, vol. 6(1), pages 43-62.
  • Handle: RePEc:ire:issued:v:06:n:01:2003:p:43_62

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    References listed on IDEAS

    1. Bernstein, David, 1996. "Asset quality and scale economies in banking," Journal of Economics and Business, Elsevier, vol. 48(2), pages 157-166, May.
    2. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
    3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    4. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
    5. Jarl G. Kallberg & Crocker H. Liu & Paolo Pasquariello, 2002. "Regime Shifts in Asian Equity and Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 263-291.
    6. Reynolds, Stephen E. & Ratanakomut, Somchai & Gander, James, 2000. "Bank financial structure in pre-crisis East and Southeast Asia," Journal of Asian Economics, Elsevier, vol. 11(3), pages 319-331, December.
    7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    8. Kwack, Sung Yeung, 2000. "An empirical analysis of the factors determining the financial crisis in Asia," Journal of Asian Economics, Elsevier, vol. 11(2), pages 195-206.
    9. Quigley, John M., 2001. "Real Estate and the Asian Crisis," Journal of Housing Economics, Elsevier, vol. 10(2), pages 129-161, June.
    10. Marcus T. Allen & Jeff Madura & Kenneth J. Wiant, 1995. "Commercial Bank Exposure and Sensitivity to the Real Estate Market," Journal of Real Estate Research, American Real Estate Society, vol. 10(2), pages 129-140.
    11. He, Ling T & Myer, F C Neil & Webb, James R, 1996. "The Sensitivity of Bank Stock Returns to Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 12(2), pages 203-220, March.
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    More about this item


    Nonperforming Loans; Real Estate; Banking System;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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