The impact of housing markets on banks’ risk-taking behavior: evidence from CESEE

Elona Dushku (), Antje Hildebrandt () and Erjona Suljoti ()
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Antje Hildebrandt: Oesterreichische Nationalbank, Foreign Research Division, http://www.oenb.at

Focus on European Economic Integration, 2019, issue Q3/19, 55-75

Abstract: This study empirically evaluates the impact of housing market dynamics and banks’ housing market exposure on banking sector stability in Central, Eastern and Southeastern Europe (CESEE). We investigate whether there are differences between the behavior of banks located in CESEE EU Member States and the behavior of banks located in the Western Balkans. We find evidence that banks’ exposure to the housing market has a significant positive impact on bank stability in both groups of countries. Furthermore, for real estate banks in CESEE EU Member States, we find that house price dynamics are positively correlated with bank stability. This outcome may possibly be related to the fact that real estate banks in these countries have better housing market expertise and, moreover, to the generally more advanced institutional environment. At the same time, we find a negative relationship between house price dynamics and bank stability for real estate banks in the Western Balkans, which might reflect the less advanced stage of institutional development in the region.

Keywords: bank risk; housing markets; housing loans; CESEE (search for similar items in EconPapers)
JEL-codes: C23 G21 O52 R39 (search for similar items in EconPapers)
Date: 2019
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