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Non-performing Loans and Housing Prices in Taiwan

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  • Tsaubin Chen
  • Chiang Ku Fan

Abstract

We set out in this study to empirically examine the relationship between house prices and bank stability based upon an exploration of quarterly data obtained from Taiwanese banks covering the years 2006 to 2015. There are various divergent views on the ways in which persistent rises in house prices can influence ‘non-performing loans’ (NPLs); one view is that when house prices rise, this may raise collateral value, and as a result, NPLs will be reduced, whilst an alternative view is that increasing house prices may give rise to issues of moral hazard and adverse selection, thereby leading to an overall increase in NPLs and greater accumulation of risky assets within the banks. The results of the dynamic panel data analysis carried out in this study reveal the existence of a long-run, negative relationship between NPL ratios and the housing price index; however, no such negative relationship is discernible in the short run. Our findings offer policy implications for the emerging markets in the aftermath of the sub-prime mortgage crisis; according to our research results, policies aimed at reducing the duration of any housing market recession may improve bank stability.JEL classification numbers: C23, G21Keywords: Non-performing loans; Bank-specific determinants; Housing market

Suggested Citation

  • Tsaubin Chen & Chiang Ku Fan, 2019. "Non-performing Loans and Housing Prices in Taiwan," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(6), pages 1-4.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:6:f:9_6_4
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    More about this item

    Keywords

    non-performing loans; bank-specific determinants; housing market;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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