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Implications Of Low Interest Rates On Bank Profitability And Risk-Taking

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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)

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.

Suggested Citation

  • Manuela Ender & Corinna Neuhofer, 2021. "Implications Of Low Interest Rates On Bank Profitability And Risk-Taking," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-27, June.
    • Handle: RePEc:wsi:jfmmix:v:09:y:2021:i:01:n:s2282717x21500031
    DOI: 10.1142/S2282717X21500031
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