Investigating the Effect of Housing Prices on Non-Performing Loans in Banking System of Iran

Document Type : Research Paper


1 Associate Professor of Economics, University of Buali Sina

2 Assistant Professor of Economics, Iran Banking Institute

3 MA in Banking


Emersion of Non-performing Loan is one of the effects monetary activities of credit institutions. A phenomenon that has a negative impact on the Bank Resources and Uses. Housing price changes is one of the most important factors affecting on NPL. The boom and Recession of the housing sector, can be effective on the repayment ability of the received loans. In this study, using the model (tajik et al, 2015), it is attempting to examine the effect of housing prices on non-performing loans in the banking sector. For this purpose, a dynamic panel model was used for a sample of 15 banks during the period of 2005-2016 using generalized moments method. The results of this study shows that the growth rate of housing price changes and the growth rate of gross domestic product without oil has a negative and significant effect, and unemployment rate has a positive effect on the ratio of NPL. Also the analysis of inter banking factors shows that the ratio of Non-performing Loan has a positive and significant relation with the ratio of loan to assets, the ratio of cost to income and bank size. There was no meaningful relation between the ratio of given loans to the building and housing sector to the total loans and the NPL.


Main Subjects

  1. Arellano, M. and Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence & an application to employment equations. The Review of Economic Studies. 58(2), 277-297.
  2. Baltagi, B. and Wu, P. (1999). Unequally spaced panel data regressions with AR(1) disturbances. Econometric Theory, 15, 814-823.
  3. Banai, Ádám and Nikolett Vágó. (2018). The effect of house prices on bank risk: Empirical evidence from Hungary. NBP Working Paper, 289.
  4. Berger, A.N. and Bouwman, C.H. (2015). How does capital affect bank performance during financial crises?. Journal Finance Economic, 109(1), 146-176
  5. Bernanke, B and Gertler, M. (1989). Agency costs, net worth, and business fluctuations. American Economic Review, 79(1), 14-31.
  6. Bernanke, B. and Gilchrist, S. (1996). The financial accelerator and the flight to quality. Review Economic Stat, 78(1), 1-15.
  7. Blundell, R and Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal Economic, 87(1), 115-143.
  8. Davis, E.P. and Zhu, H. (2011). Bank lending and commercial property cycles: some cross-country evidence. Journal Int. Money Financ, 30(1), 1-21.
  9. Espinoza, and Prasad. (2010). Nonperforming loans in the GCC banking system & their macroeconomic effects. IMF Working Paper, wp/10/224.
  10.  Favara, G and Imbs, J. (2015). Credit supply and the price of housing. American Economic Review,105(3), 958-992.
  11.  Gholizadeh A, Ahmadzade E. (2007). Evaluation of the Maskan Bank credits on housing price, Maskan Bank, Reseach and Development Center, 110-128. (In Persian).
  12.  Gholizadeh, A. and Bakhtiyaripour, S. (2010). The effect of credits on housing prices in Iran. Journal of Applied Economics Studies, 3, 159-179. (In Persian).
  13.  Gholizadeh, A. and Shalyari, F. (2017). The Investigation of macroeconomic variables effect on credit risk Iranian banking system. mieaoi. 17 (20), 183-200. (In Persian).
  14.  Heydari, H, Zavarian, Z and Noorbakhsh, I. (2011). The Effect of macroeconomic indices on non-performing loans. Money and economy, 4, 191-219. (In Persian).
  15.  Iacoviello, Matteo. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review, 95(3), 739-764.
  16.  Kiyotaki, N. and Moore, J. (1997). Credit cycles. Polit Econ. 105(2), 211–248.
  17.  Li, Y. (2003). The Asian financial crises & non-performing loans:Evidence from commercial banks in Taiwan. International Journal of Management, 20(1), 405-420.
  18.  Leamer, E. (2007). Housing is the business cycle. The National Bureau of Economic Research Working Paper, (13428).
  19.  Mohammadzadeh, A, Ataei, M and Salimi, H. (2014). Identification and prioritization of barriers to collecting deferred bank claims using the Diethyl Network and Vicoure. Quarterly Journal of Development Evolution Managements, 16, 15-26. (In Persian).
  20.  Moscone, F., Tosetti, E and Canepa, A. (2014). Real estate market and financial stability in US metropolitan areas: A dynamic model with spatial effects. Regional Science and Urban Economics, 49, 129–146.
  21.  Nazarian, R and Safarpour, S. (2011). The assessment of the effect of the bank interest rate on the fluctuation of the deferred banking system. iauctb, 17, 43-65. (In Persian).
  22.  Nkusu, M. (2011). Nonperforming loans and macrofinancial vulnerabilities in advanced economies. International Monetary Fund Working Paper, 11/16.
  23.  Pan, H and Wang, C. (2013). House prices, bank instability, and economic growth: evidence from the threshold model. Journal of Banking & Finance, 37 (5), 1720-1732.
  24.  Rahmani, T and Esfehani, P. (2016). Evaluation of the relationship between housing sector cycles, housing sector facilities and deferred claims. Journal of Housing Economics, 57, 11-31. (In Persian).
  25.  RanjbarMotlagh, L. (2005). The Principles of credit risk management.  Bureau of banking studies and regulation of Central bank of the Islamic Republic of Iran. (In Persian).
  26.  Tajik, M, Aliakbari, S and Ghalia, T. (2015). House prices and credit risk: Evidence from the United States, Journal of Economic Modelling, 51(2). 35-48.
  27.  Trust, R and Mpofu, Nikolaidou. (2018). Determinants of credit risk in the banking system in Sub-Saharan Africa. Review of Development Finance,  8(2), 141-153.
  28.  Vaez, M, Amiri,  H and Heidari, M. (2011). The effect of business cycles on the rate of default of banking facilities and determining the optimal basket of facilities for the entire banking system. Journal of Monetary and Banking Research, 7(2), 41-76. (In Persian).