IMPLICATIONS OF LOW INTEREST RATES ON BANK PROFITABILITY AND RISK-TAKING

Manuela Ender () and Corinna Neuhofer
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Manuela Ender: Campus Urstein, Salzburg University of Applied Sciences, Urstein Süd 1, 5412 Puch/Salzburg, Austria
Corinna Neuhofer: Campus Urstein, Salzburg University of Applied Sciences, Urstein Süd 1, 5412 Puch/Salzburg, Austria

Journal of Financial Management, Markets and Institutions (JFMMI), 2021, vol. 09, issue 01, 1-27

Abstract: This paper investigates the effect of low interest rates on bank profitability and risk-taking. A comprehensive depiction of the current state of research was developed based on systematic literature review and qualitative content analysis. A low interest rate environment, as present in many economies, has various implications on bank profitability and risk-taking. A positive relationship is found between interest rates and net interest income, while the relationship with non-interest income is negative. Also, banks increase risk-taking in search for yield. The influence on bank profitability is highly dependent on several factors, but in most papers a negative influence is found. Throughout the world banks have managed to limit the impact through mitigation strategies, such as diversification, which are presented as guidance.

Keywords: Low interest rates; bank profitability; risk-taking; net interest income; net interest margin (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2282717X21500031

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