Determinants of NMD Pass-Through Rates in Eurozone Countries

Milan Fičura and Jiří Witzany

No 4.004, FFA Working Papers from Prague University of Economics and Business

Abstract: Non-Maturing Deposit (NMD) pass-through rate represents a key parameter needed in the process of interest rate management of the banking book (IRRBB). NMD interest rates for retail and corporate segments are usually not directly linked to the market interest rates, but depend rather on the bank's marketing strategy, market competition, liquidity, and possibly on other factors. The ratio in which banks adjust their NMD interest rates to the changes of the interbank market interest rates is known as the NMD pass-through rate. The goal of this paper is to analyse the variability of NMD pass-through rates in the 19 Eurozone countries and identify their possible determinants. The pass-through rates are estimated using cointegration analysis based on datasets available from the ECB Statistical Data Warehouse and the results show significant variability between countries. To analyse the determinants of pass-through rates in the Eurozone, the rates are regressed on 9 aggregates of country-level banking sector including concentration, profitability, or funding. Out of the tested predictors, surprisingly only the ratio of Wholesale Funding to Liabilities proves to impact the pass-through rates significantly, with a positive sign, indicating that countries where banks rely more heavily on wholesale funding exhibit higher pass-through of the market interest rate changes to the NMD deposit rates.

Keywords: Non-Maturing Deposits (NMD); pass-through rate; IRRBB (search for similar items in EconPapers)
JEL-codes: C32 E43 E58 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2021-11-30, Revised 2022-03-11
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://wp.ffu.vse.cz/artkey/wps-202201-0004_determ ... rozone-countries.php (text/html)
http://wp.ffu.vse.cz/pdfs/wps/2022/01/04.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:prg:jnlwps:v:4:y:2022:id:4.004

Ordering information: This working paper can be ordered from
Faculty of Finance and Accounting, University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3, Czech Republic
http://wp.ffu.vse.cz

Access Statistics for this paper

More papers in FFA Working Papers from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().