The bank is a sort of the financial organizations, its social and economical status is quite different from the general enterprises. Especially, its operation performance greatly influences the national finance solidity and the social stability. On the other hand, the bank is an organization with credibility and the main fund resource is the deposits of the people. If its operation consequence is not good, the majority of the investors will be terribly affected and the entire credit system of the nation will be deteriorated as well.
The financial organizations in Taiwan mainly concentrate on the traditional loan business and the real estate mortgage is the preference for the crediting assessments. However, once the value of the collateral drops, it might lead to a large quantity of Non-performing loan as well as damage the creditor''s rights of the financial organizations. More seriously, it might result in the lenders’ bankruptcy and a rapid increase of the banks’ bad credits and the operation risk. To some banks without solid finance backgrounds, it is relatively difficult for them to handle such bad credits, even threaten them to be insolvent or merged by other banks. Therefore, the banks’ profit-making ability and its risk management are closely connected with the quality of the real estate market.
For the banks’ main business, it easily brings about, especially in a murky real estate market, a sharp decrease of the banks’ wealth and its fund dispatch. In addition, when the value of the collateral is lower than the remaining loan amount, it might decrease the creditor''s rights for the real estate collateral and increase the banks’Non-performing loan. Under the possession of the inferior assets, the security for the banks’ continued operations will be seriously threatened, not to mention other business goals to be pursued for such as profitability, the liquidity, the growth and the public welfare. Obviously, the security is the most concerned in the position of the banks. The banks have to be very cautious about the loan quality to ensure the security of its creditor''s rights. In other words, the interests of the shareholders and depositors can be dully protected.
The construction industry is usually regarded as the leading industry due to the highly overall productivity. Hence, the loans to the construction industry is one of the main loan business. However, as the loans are usually involved in a large amount, the overdue loans has a significant influence on the banks’ ratio of NPL. Therefore, the banks should deliberate the problems and the risk, while handling the loans to the construction industry, in order to maintain the security of the creditor''s rights.
The real diagnoses from the models depicted in the article show the following important results:
1.The banks’ profit benchmarks like “ROA” and ”ROE” are greatly influenced by the model of the ”30 days possible deal price index”, a Cathay Real Estate housing index, which can fully explain the banks’ profit-making ability.
2.By means of the model of a real estate variable from the domestic banks’ loan balance to the construction industry, it can also reveal the banks’ profit-making ability.
3.Two real estate synthesis indexes, Advanced Index and Simultaneous Index, announced by the Architecture and Building Research Institute ,Ministry of the Interior can not explan the banks’ profit-making ability.
4.The banks’ profit benchmarks like “ROA” and ”ROE” are greatly influenced by the loan balance to the domestic construction industry, but the correlation between them is not fixed.
5.The banks’ profit benchmarks like “ROA” and ”ROE” are not greatly influenced by the domestic consumers’ loans, a house-purchasing loan variable.
6.The banks’ profit benchmarks like “ROA” and ”ROE” are greatly influenced by the productive index of the construction industry with the same correlation.
Key word:Cathay Real Estate housing index, Return on Equity, Return on Assets.