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Residential Property Loans and Bank Performance during Property Price Booms: Evidence from Europe

Author

Listed:
  • António Miguel Martins

    (CIICESI, Escola Superior de Tecnologia e Gestão de Felgueiras, Instituto Politécnico do Porto)

  • Ana Paula Serra

    (CEF.UP and Universidade do Porto)

  • Francisco Vitorino Martins

    (FEP, Universidade do Porto)

  • Simon Stevenson

    (School of Real Estate & Planning, Henley Business School, University of Reading)

Abstract
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.

Suggested Citation

  • António Miguel Martins & Ana Paula Serra & Francisco Vitorino Martins & Simon Stevenson, 2014. "Residential Property Loans and Bank Performance during Property Price Booms: Evidence from Europe," Real Estate & Planning Working Papers rep-wp2014-05, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2014-05
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    File URL: http://centaur.reading.ac.uk/36848/7/wp0514.pdf
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    1. Martins, António Miguel & Serra, Ana Paula & Stevenson, Simon, 2019. "Determinants of real estate bank profitability," Research in International Business and Finance, Elsevier, vol. 49(C), pages 282-300.

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    More about this item

    Keywords

    Residential Property Prices; Mortgage Loans; Bank Performance; Dynamic Panel Estimation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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