The Impact of Housing Price on CAMEL---Taking China for Example
Date Issued
2015
Date
2015
Author(s)
Chen, Wei-Ju
Abstract
Since 1979, China has actively promoted the reform of bank system. In the second half of 2007, although the subprime mortgage crisis in the U.S. has caused the global financial crisis, it did not result in significant impact on the bank industry in China but the expansion of overall bank assets. Since September 2008, to support the economic growth, the government of China has carried out the easing monetary policy and large-scale revitalization of economic policies. The excess liquidity led to the overheated real estate market and sharp increase in bank loans. Since the post-financial crisis, the real estate market in China continues to prosper. The price of real estate has swiftly reached the global peak, and almost every state-owned and large private-run company in China have engaged themselves in the development of real estate. As a result, once the price of assets slumps in the future, the influence of subsequent effects caused by such slump on the overall environment should not be ignored. The study was divided into two parts. First, the study explored the influence of changes in price of real estate in China on the performance of CAMEL in banks; second, the study explored the relationship between the growth rate of loans and housing price. The study selected the indexes frequently used in the past literatures as dependent variable. One or two indexes were used in each dimension of CAMEL. First, the study used OLS to find out the long-term basic value of housing, followed by the deviation calculated by the nominal housing price subtracted by the basic value of housing. Later, the variable, the housing price and other important independent variables were put in the panel fixed effect model to discuss their influence on CAMEL respectively. In the second part of the study, two models were set up to explore whether the growth rate of loans influenced the housing price or vice versa. The study obtained three conclusions. First, the housing price was positively correlated with the capital adequacy ratio, quality of assets, management, profitability, and liquidity; however, the housing price had a less significant negative relation with the burden ratio. Second, the deviation of housing price was negatively correlated with the capital adequacy ratio, quality of assets, capability of management, profitability, and liquidity. Third, the housing price had a significant positive relation with the growth rate of loans. The influence of previous housing price on the growth rate of loans was even more significant; however, although the growth rate of loans was positively correlated with the housing price, it was not significantly related.
Subjects
Housing price
Capital adequacy ratio
Asset quality
liquidity ratio
SDGs
Type
thesis