Banking System, Real Estate Markets, and Nonperforming Loans
Author
Start Page / End Page
Volume
Issue Number
Year
Publication
Wen-Chieh Wu, Chin-Oh Chang, Zekiye Selvili
43 / 62
6
1
2003
International Real Estate Review
Abstract
This paper examines the link between nonperforming loans, real estate prices, and the banking system. We found that the level of nonperforming loans affects bank profitability as well as the price performance of real estate markets. We also analyzed the factors that cause the ratio of nonperforming loans to total loans to fluctuate. We observed that a higher ratio of corporate
loans to individual loans results in a lower percentage of nonperforming loans. In contrast, a lower real estate lending rate relative to the primary lending rate leads to a higher percentage of nonperforming loans. These results suggest that the percentage of nonperforming loans can be partially governed by the lending practices of banks.