Credit Risk in Commercial Real Estate Bank Loans: The Role of Idiosyncratic versus Macro-Economic Factors

45 Pages Posted: 16 Sep 2019

See all articles by Dimitris Mokas

Dimitris Mokas

De Nederlandsche Bank

Rob Nijskens

De Nederlandsche Bank

Date Written: August 29, 2019


The commercial real estate market is pro-cyclical. This feature, together with the relative size of the industry and the large capital inflows, has made this sector relevant for financial stability. Using a novel loan level data set covering the commercial real estate portfolios of Dutch banks we aim to uncover potential drivers of distress in commercial real estate loans. Furthermore, we estimate the relative importance of idiosyncratic and systematic factors and emphasize the importance of bank behavior for distinguishing between good and bad credit growth. We find that loans originated near the peak of the cycle are riskier, confirming the pro-cyclical nature of the market. As opposed to loans originated during busts, the risk of boom loans does not decrease when economic conditions improve. Idiosyncratic factors correlated with higher credit risk are loan-to-value ratios and interest rates, especially when coupled with variable rate contracts. Moreover, we find that collateral type plays a role, as loans for non-residential (office, retail, industrial) real estate with higher vacancy rates are riskier. These results have implications for both macroprudential and microprudential supervision, as they demonstrate the pro-cyclicality of the market and show that indicators like loan-to-value, interest rate structure and vacancy rates must be monitored more carefully in boom times.

Keywords: macroprudential policy, risk monitoring, commercial real estate, procyclicality of credit

JEL Classification: E32, E44, E58, G21, G3, G33

Suggested Citation

Mokas, Dimitris and Nijskens, Rob, Credit Risk in Commercial Real Estate Bank Loans: The Role of Idiosyncratic versus Macro-Economic Factors (August 29, 2019). De Nederlandsche Bank Working Paper No. 653, Available at SSRN: or

Dimitris Mokas (Contact Author)

De Nederlandsche Bank ( email )


Rob Nijskens

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
+31 20 524 3234 (Phone)

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