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Commercial property prices and bank performance

  • E. Philip Davis

    (Brunel University)

  • Haibin Zhu

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.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 175.

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Length: 37 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:bis:biswps:175
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  17. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
  18. Daniel C. Quan & Sheridan Titman, 1999. "Do Real Estate Prices and Stock Prices Move Together? An International Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 183-207.
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  23. E Philip Davis, 1999. "Financial data needs for macroprudential surveillance - What are the key indicators of risks to domestic financial stability?," Lectures, Centre for Central Banking Studies, Bank of England, number 2, November.
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