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Does Monetary Policy Influence the Profitability of Banks in New Zealand?

Vijay Kumar (), Sanjeev Acharya () and Ly Ho ()
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Vijay Kumar: New Zealand Institute for Business Research, The University of Waikato, Hamilton 3216, New Zealand
Sanjeev Acharya: School of Business and Management, Southern Institute of Technology, Invercargill 9810, New Zealand

IJFS, 2020, vol. 8, issue 2, 1-17

Abstract: The study investigates the relationship between monetary policy and bank profitability in New Zealand using the generalized method of moments (GMM) estimator. Our sample comprises 19 banks from New Zealand over the period 2006–2018. Our results suggest that an increase in short-term rate leads to an increase in the profitability of banks, while an increase in long-term interest rates reduces bank profitability. In addition to monetary policy variables, capital adequacy ratio, non-performing loan ratio, and cost to income ratio are also important determinants of the profitability of banks in New Zealand. Capital adequacy ratio has a positive impact on bank profitability, while non-performing loan ratio and cost to income ratio have a negative impact on bank profitability.

Keywords: monetary policy; short-term interest rates; long-term interest rates; bank size (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2020
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