Implications of negative interest rates for the net interest margin and lending of euro area banks
No 848, BIS Working Papers from Bank for International Settlements
This paper explores the impact of low (but) positive and negative market interest rates on euro area banks' net interest margin (NIM) and its components, retail lending and retail deposit rates. Using two proprietary bank-level data sets, I find a positive impact of the level of the short-term rate on the NIM, which increases substantially at negative market rates. As low profitability could hamper the ability of banks to expand lending, I also investigate the impact of the NIM on new lending to the non-financial private sector. In general, the NIM is positively related to lending: When lending is less profitable, banks cut lending. However, at negative rates this effect vanishes. This finding suggests that banks adjusted their business practices when servicing new loans, thereby contributing to higher new lending in the euro area since 2014.
Keywords: net interest margin; monetary policy; negative interest rates; bank pro tability; lending (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mac
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Working Paper: Implications of negative interest rates for the net interest margin and lending of euro area banks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:848
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