The sensitivity of banks’ net interest margins to interest rate conditions in CESEE
Katharina Allinger () and
Julia Wörz ()
Additional contact information
Julia Wörz: Foreign Research Division, Oesterreichische Nationalbank, http://www.oenb.at
Focus on European Economic Integration, 2020, issue Q1/20, 51-70
Since the global financial crisis, the relationship between monetary policy and banks’ net interest margins (NIMs) has been investigated in many studies, not least in light of the low interest rate environment. However, to our knowledge, this is the first econometric study that explores this topic for the Central, Eastern and Southeastern European (CESEE) economies. Using banklevel data for 15 CESEE countries from 2006 to 2018, we assess the effect of the interest rate environment on banks’ NIMs. Our policy rate variable takes into account both the domestic and the international interest rate environment (euro area, U.S.A. and Switzerland). To construct this variable, we use the shares of foreign and domestic currency loans in total bank loans extended to the domestic private sector as weights for the interbank rates of the different jurisdictions. Our results show that lower (weighted) interest rates lead to lower NIMs and that the effect is nonlinear, i.e. it becomes more pronounced as the level of interest rates falls. This finding is in line with the existing literature on other, more advanced economies. As net interest income (NII) is the key revenue component of banks, especially given the traditional lending and deposit-taking business model prevalent in the CESEE banking sectors, we conclude that both pressures on NIMs and the development of interest rates in the region and worldwide should be monitored closely.
Keywords: low interest rates; monetary policy rate; bank profitability; Central; Eastern and Southeastern Europe (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.oenb.at/dam/jcr:55345c8d-ecd9-4659-8bf ... 20_AllingerWoerz.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:onb:oenbfi:y:2020:i:q1/20:b:3
Ordering information: This journal article can be ordered from
Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria
Access Statistics for this article
Focus on European Economic Integration is currently edited by Doris Ritzberger-Gruenwald and Helene Schuberth
More articles in Focus on European Economic Integration from Oesterreichische Nationalbank (Austrian Central Bank) P.O. Box 61, A-1011 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Markus Eller ().