Commercial real estate loans in Europe: does loan-to-value at origination predict default risk?

Federica Ciocchetta (), Raffaella Pico () and Ivan Quaglia ()
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Federica Ciocchetta: Bank of Italy
Raffaella Pico: Bank of Italy
Ivan Quaglia: Bank of Italy

No 905, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyses bank financing for commercial real estate (CRE), focusing on Italy and comparing it with a sample of other euro-area countries. The analysis is based on the European AnaCredit database. The study examines loan characteristics, their riskiness and the relationship between loan-to-value at origination (LTV-O) and default probability, providing insights into the potential effectiveness of LTV-O limits as a macroprudential tool. The analysis reveals notable differences across countries in CRE exposure levels, CRE lending practices and credit risk, with Italy having limited exposure, high reliance on commercial property as collateral and a significant use of additional guarantees for large LTV-O loans. The econometric results confirm a link between LTV-O and default probability in Italy and Spain, highlighting the importance of tailored macroprudential policies in enhancing financial stability.

Keywords: bank lending; commercial real estate; default probability (search for similar items in EconPapers)
JEL-codes: G21 R33 (search for similar items in EconPapers)
Date: 2025-02
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_905_25

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