Determinants of bank profitability in emerging markets

Emanuel Kohlscheen, Andrés Murcia and Julieta Contreras

No 686, BIS Working Papers from Bank for International Settlements

Abstract: We analyse key determinants of bank profitability based on the evolution of balance sheets of 534 banks from 19 emerging market economies. We find that higher long-term interest rates tend to boost profitability, while higher short-term rates reduce profits by raising funding costs. We also find that in normal times credit growth tends to be more important for bank profitability than GDP growth. The financial cycle thus appears to predict bank profitability better than the business cycle. We also show that increases in sovereign risk premia reduce bank profits in a significant way, underscoring the role of credible fiscal frameworks in supporting the overall financial stability.

Keywords: bank profitability; credit; risk premia; emerging markets; interest rates (search for similar items in EconPapers)
JEL-codes: E32 E43 G21 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-01
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:686

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