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Residential property loans and bank performance during property price booms: evidence from Europe

Martins, A. M., Serra, A. P., Martins, F. V. and Stevenson, S., (2014) Residential property loans and bank performance during property price booms: evidence from Europe. Working Papers in Real Estate & Planning. 05/14. Working Paper. University of Reading, Reading. pp46.

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Understanding the performance of banks is of the utmost importance due to the impact the sector may have on economic growth and financial stability. Residential mortgage loans constitute a large proportion of the portfolio of many banks and are one of the key assets in the determination of their performance. Using a dynamic panel model, we analyse the impact of residential mortgage loans on bank profitability and risk, based on a sample of 555 banks in the European Union (EU-15), over the period from 1995 to 2008. We find that an increase in residential mortgage loans seems to improve bank’s performance in terms of both profitability and credit risk in good market, pre-financial crisis, conditions. These findings may aid in explaining why banks rush to lend to property during booms because of the positive effect it has on performance. The results also show that credit risk and profitability are lower during the upturn in the residential property cycle.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:36848
Uncontrolled Keywords:Residential Property Prices; Mortgage Loans; Bank Performance; Dynamic Panel Estimation
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author(s). In some cases a more recent version of the paper may have been published elsewhere, please contact the appropriate author for further details.


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