XXV Edition

1-2 December 2016"

Banks' Risk Appetite in Residential Mortgage and Cross-Selling Policies: Evidence from the Euro Area

Filotto Umberto, University of Rome Tor Vergata
Giannotti Claudio, LUMSA University
Mattarocci Gianluca, University of Rome Tor Vergata
Scimone Xenia, University of Rome Tor Vergata

Cross selling is a standard approach adopted in the banking industry in order to maximize the expected revenue related to a banking relationship, and residential real estate loans are one of the main instruments used in order to look for new customers and to establish a medium- to long-term relationship. Cross selling connected to residential mortgages could represent a useful instrument in order to reduce the overall risk of the bank, coherently with a lower board-approved risk appetite and a sound bank’s risk culture. The paper evaluates if the advantages related to cross selling are specifically relevant to lenders exposed to the residential mortgage market. The hypothesis tests whether a bank can maximize and stabilize the performance achieved. The paper compares trends in cross selling and real estate loans for a representative set of European banks and shows that the two variables are not perfectly correlated and some banking features, including size and real estate loan specialization, may affect the link between residential real estate loans and cross selling. Non-specialized real estate banks benefit the most from cross-selling activities due to a higher increase in the return on assets (ROA) and a less significant increase in the Z-Score. Results support the hypothesis that cross selling advantages exists but they cannot work for excessive real estate exposures and they cannot represent the unique solution used for maximizing returns and minimize risk.

Area: Banking

Keywords: Bank, risk appetite, residential mortgage, cross-selling policies

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