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

António Miguel Martins, Ana Paula Serra, Francisco Vitorino Martins and Simon Stevenson ()
Additional contact information
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

Real Estate & Planning Working Papers from 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.

Keywords: Residential Property Prices; Mortgage Loans; Bank Performance; Dynamic Panel Estimation (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-ban, nep-eur and nep-ure
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Residential Property Loans and Bank Performance during Property Price Booms: Evidence from Europe (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:repxwp:rep-wp2014-05

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