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The Effect of Housing Prices on Bank Performance in Korea

1
DGB Research Institute, Daegu 41593, Korea
2
Department of Business Administration, Yeungnam University, Gyeongsan 38541, Korea
3
Department of Finance, College of Business, Hallym University, Chuncheon 24252, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2019, 11(22), 6242; https://doi.org/10.3390/su11226242
Received: 1 October 2019 / Revised: 23 October 2019 / Accepted: 4 November 2019 / Published: 7 November 2019
This study analyzes the relationship between housing prices and bank performance in Korea. To this end, using lending growth, return on assets, and non-performing loans as a performance measure, we estimate fixed-effects models for each measure. Major empirical results are summarized as follows. First, fluctuations in housing prices affect the banks’ lending decisions. If housing prices rise, banks tend to increase the volume of loans. Second, fluctuations in housing prices affect the quality of assets owned by banks. Banks’ asset soundness will improve in the case of a rise in housing prices. Third, fluctuations in housing prices have a greater impact on bank profitability when the real estate market goes bust. Our study suggests that in Korea, one of the emerging markets, there is a positive relationship between changes in housing prices and banks’ performance. In particular, banks’ profitability and soundness could be significantly hampered by a drop in housing prices. Therefore, it is necessary to be wary of excessively expanding real estate loans during the period of real estate booms. View Full-Text
Keywords: bank performance; fixed effect model; granger causality; housing price; sustainability bank performance; fixed effect model; granger causality; housing price; sustainability
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Ok, Y.; Kim, J.; Park, Y.J. The Effect of Housing Prices on Bank Performance in Korea. Sustainability 2019, 11, 6242.

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