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Commercial property prices and bank performance

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  • E. Philip Davis

    (Brunel University)

  • Haibin Zhu

Abstract

We 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.

Suggested Citation

  • E. Philip Davis & Haibin Zhu, 2005. "Commercial property prices and bank performance," BIS Working Papers 175, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:175
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    More about this item

    Keywords

    commercial property prices; bank performance; panel estimation; financial accelerator;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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