The Impact of Banks’ Interest Rate Risk on Monetary Policy Transmission

H. Ozlem Dursun-de Neef, Tarik Alperen Er and Ibrahim Yarba

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Combining bank-firm level credit registry data on the universe of loans and firms’ financial statements, we analyze the transmission of policy rate movements to banks’ lending behavior through their ex-ante exposure to interest rate risk. Controlling for demand side factors and other bank characteristics that are known to affect monetary policy transmission, our bank-firm level analyses show that banks with higher ex-ante exposure to interest rate risk reduce their lending and shorten their loan maturities once interest rates begin to rise, compare to banks with lower exposure. However, the effect is valid only for private banks, not state-owned banks. This effect is particularly pronounced for banks with low capital ratios, highlighting the importance of bank capital in contractionary periods. The effect persists at the firm level where firms are unable to avoid reductions in their loans by switching to less-exposed banks. Yet, this is the case only for SMEs, not for large firms. This reveals the asymmetric deterioration in SMEs’ lending conditions relative to large firms. We also document the real effects of the monetary policy transmission on firms’ sales and employment. Our findings reveal that SMEs, but not large firms, with higher exposure to interest rate risk through their banks experience declines in sales and employment.

Keywords: Interest rate risk; Bank lending; Monetary policy transmission; SMEs (search for similar items in EconPapers)
JEL-codes: E51 E52 G21 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2026/26-01 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2601

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().