Bank profitability during recessions

Bolt, Wilko; Haan, Leo de; Hoeberichts, Marco; Oordt, Maarten van; Swank, Job

doi:10.1016/j.jbankfin.2012.05.011

Cited by 139 publications

(118 citation statements)

References 31 publications

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“…What is more, for eight out of the 11 Italian banks in the sample, the effect of the upward shift in the interest rate level would be beneficial to their net interest income. Bolt et al (2012) find as well that the level of market interest rates has a positive impact on the banks' net interest margin. However, they do not distinguish between short-term and long-term effects.…”

Section: Literaturesupporting

confidence: 52%

Banks' Net Interest Margin and the Level of Interest Rates

Busch

Memmel

2017

Credit and Capital Markets – Kredit und Kapital

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Reproduction permitted only if source is stated. ISBN Non-technical summary Research QuestionNet interest income is the main source of income for banks. As a result of carrying out maturity transformation, banks' net interest income is affected in the short run by the dynamics in the term structure. Therefore, as a rule, an increase in interest rates leads to a decline in net interest income in the following years. However, little is known about the medium and long-term effects of changes in the interest rate level. Anecdotal evidence suggests that net interest income benefits in the medium and long term if interest rates increase. This paper also investigates the effects of the low interest rate environment on the margin for customer deposits. ContributionThe short-run effect of a change in the interest rate level is widely discussed and empirically investigated in the literature. The medium and long-term effects are harder to detect, however, because short-term developments mask this effect and the applied datasets often cover a period of only up to 20 years. In this paper, the authors use a dataset that covers more than 40 years and a model which nevertheless allows them to differentiate between the short-and long-run effects of a rise in the interest rate level. ResultsThe paper shows that banks' net interest income benefits over the medium to long-term horizon if the interest rate level increases. An increase of 100 basis points in the interest rate level leads to an increase in the net interest margin of about 7 basis points. It is therefore possible to demonstrate empirically that the short-term effect and medium to long-term effects on banks' net interest margin are diametrically opposed. Furthermore, the authors find that the margins for retail deposits have declined by up to 97 basis points owing to the low interest rate environment. Nichttechnische Zusammenfassung FragestellungDas Zinsergebnis ist die wichtigste Einnahmequelle der Banken. Dadurch, dass Banken Fristentransformation betreiben, ist das Zinsergebnis in der kurzen Frist von der Dynamik der Zinsstruktur betroffen. Ein Ansteigen der Zinsen führt dadurch in der Regel zu abnehmenden Zinsergebnissen in den Folgejahren. Über die mittel-und langfristige Wirkung von Änderungen des Zinsniveaus ist dagegen wenig bekannt. Anekdotische Evidenz legt nahe, dass das Zinsergebnis mittel-und langfristig profitiert, wenn das Zinsniveau ansteigt. Auch wird in dem Papier die Wirkung untersucht, die das gegenwärtige Niedrigzinsumfeld auf die Margen der Kundeneinlagen hat. BeitragDer kurzfristige Effekt einer Veränderung der Zinsstrukturkurve wird in der Literatur ausgiebig diskutiert und empirisch untersucht. Mittel-und langfristige Entwicklungen dagegen sind schwerer nachzuweisen, weil kurzfristige Entwicklungen den Effekt überlagern und die verwendeten Zeitreihen in der Regel nur bis zu 20 Jahre betragen. In diesem Papier verwenden die Autoren einen Datensatz, der mehr als 40 Jahre umfasst, und ein entsprechend spezifiziertes Modell, das es ihnen erlaubt, ...

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Section: Literaturesupporting

confidence: 52%

Banks' Net Interest Margin and the Level of Interest Rates

Busch

Memmel

2017

Credit and Capital Markets – Kredit und Kapital

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“…More recently, interest has been raised on peripheral and emerging economies (Flamini, McDonald, & Schumacher, 2009;Javaid, Anwar, Zaman, & Gafoor, 2011;Olson & Zoubi, 2011;Misra, 2015) and on the effect of the crisis on bank profitability; however existing literature on this latter theme is still limited (Bolt, de Haan, Hoeberichts, van Oordt, & Swank, 2012;Beltratti & Stulz, 2012;Kasselaki & Tagkalakis, 2014).…”

Section: Introduction and Brief Literature Reviewmentioning

confidence: 99%

Determinants of Bank Profitability in the Euro Area: What Has Changed During the Recent Financial Crisis?

Rossi¹,

Borroni²,

Lippi³

et al. 2018

IBR

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During the recent financial crisis, bank profitability has become an element of strong concern for regulators and policymakers; in fact both self-financing strategies and capital increases -necessary to provide higher level of capitalization -rely on the ability of a bank to generate profits. However, the determinants of bank profitability, that seemed to be unequivocally identified by previous literature, appear to have changed under the effect of regulatory and competitive dynamics. We test this hypothesis on commercial, cooperative and saving banks, employing a random effect panel regression on a dataset comprising bank-level data and macroeconomic information (covering the period 2006-2013) for 9 countries of the Euro area. Our findings suggest that, after a period of "irrational exuberance" in which credit growth and high leverage were seen as proper and fast ways to boost profitability, a sound financial structure and a wiser and objective credit portfolio management have become the main drivers to ensure higher returns.

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“…Results show that there is a positive association between profitability and management ownership for non-traditional banks, whereas positive association between profitability and board ownership is found in traditional banks. Bolt, Haan, Hoeberichts and Oordt (2012) take an attempt to contribute to the existing literature on the relation between economic activity and bank profitability. They find loan losses as the main driver of bank profitability.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Bank Profitability: Empirical Evidence from Bangladesh

Rahman

Hamid²,

Khan³

2015

IJBM

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This study attempts to investigate capital strength, credit risk, ownership structure, bank size, non-interest income, cost efficiency, off-balance sheet activities, liquidity as potential bank specific determinants as well as growth in gross domestic products, inflation as potential macroeconomic determinants of bank profitability by taking 25 commercial banks from Bangladesh for a period ranges from 2006 to 2013. Three different measures of profitability namely return on assets (ROA), net interest margin over total assets (NIM) and return on equity (ROE) are used in the study. The empirical findings suggest that capital strength (both regulatory capital and equity capital) and loan intensity has positive and significant impact on profitability. Results also show that cost efficiency and off-balance sheet activities have negative and significant impact on bank profitability. The impact of other variables is not uniform in respect of different measures of profitability. Non-interest income, credit risk and GGDP are found as important determinant for NIM. Size has a positive and significant impact on ROA. Finally inflation has a negative and significant impact on ROA and ROE.

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Bank profitability during recessions

Cited by 139 publications

References 31 publications

Banks' Net Interest Margin and the Level of Interest Rates

Banks' Net Interest Margin and the Level of Interest Rates

Determinants of Bank Profitability in the Euro Area: What Has Changed During the Recent Financial Crisis?

Determinants of Bank Profitability: Empirical Evidence from Bangladesh

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