Mortgage Lending and Financial Stability in Asia

This paper presents estimates of the effect of the share of mortgage lending by individual banks on two measures of financial stability — the bank Z-score and the nonperforming loan ratio. The sample covers 212 banks in 19 emerging Asian economies for 2007-2013 from the Bankscope database. The findings suggest that mortgage lending is positive for financial stability, specifically by lowering the probability of default by financial institutions and reducing the nonperforming loan ratio, at least in noncrisis periods, for levels of mortgage shares up to 30%-40%. For higher levels of mortgage lending shares, the impact on financial stability turns negative. Mortgage lending can also be a useful measure of both financial development and financial inclusion