The impact of low interest rates on the bank profitability

Tomáš Fabian and Kristína KoÄ iÅ¡ová

International Journal of Monetary Economics and Finance, 2023, vol. 16, issue 1, 23-39

Abstract: The recent negative interest rate policy implemented by the European Central Bank (ECB) has raised concerns about the impact of interest rates on bank profitability. Therefore, this paper aims to study the determinants of banking profitability in the European Union (EU) countries. Using annual macro-level data for the period 2008-2018, we examine the impact of banking sector, macroeconomic, and competition variables on the aggregate profitability of the banking sectors by using a panel data methodology. We find a positive relationship between short-term rates and negative relationship long-term rates. Hence, our findings indicate that monetary policy significantly influences bank profits in EU countries.

Keywords: bank profitability; low interest rate policy; European Union countries; banking sector variables; macroeconomic variables; competition; short-term interest rate; long-term interest rate; panel data. (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:16:y:2023:i:1:p:23-39

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