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Analysis Of Interest Rates And Banking Sector Profitability

Author

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  • Kemal Kozarić
  • Emina Žunić Dželihodžić

Abstract

Global low interest rate environment enforced banks to lower interest rates what should directly affect their profitability. Thus, this paper focuses on analysis of bank interest rate and profitability movement and their relation. Return on equity is used as measure of bank profitability. Paper presents differences and similarities between selected Western Balkan countries in terms of banking interest rates and profitability. In empirical part of research different scientific methods were used. For that purpose, data from Central Bank of Bosnia and Herzegovina for period 2008-2018 were used. At the beginning of analysis Pearson coefficient of correlation between analyzed variables was performed. After that regression analysis was implemented. Results indicate on positive relation of long-term interest rates and negative relation of short term-interest rates with banking sector profitability.

Suggested Citation

  • Kemal Kozarić & Emina Žunić Dželihodžić, 2020. "Analysis Of Interest Rates And Banking Sector Profitability," Ekonomske ideje i praksa, Faculty of Economics and Business, University of Belgrade, issue 36, pages 21-30, March.
    • Handle: RePEc:beo:ekidpr:y:2020:i:36:p:21-30
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    References listed on IDEAS

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    1. Song l KAK LL ACARAVCI & Ahmet Ertugrul ALIM, 2013. "Turkish Banking Sector's Profitability Factors," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 27-41.
    2. Elisa Menicucci & Guido Paolucci, 2016. "The determinants of bank profitability: empirical evidence from European banking sector," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 14(1), pages 86-115, July.
    3. Altavilla, Carlo & Boucinha, Miguel & Peydró, José-Luis, 2018. "Monetary policy and bank profitability in a low interest rate environment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 33(96), pages 531-586.
    4. J.A. Bikker & Tobias M. Vervliet, 2017. "Bank Profitability and Risk-Taking under Low Interest Rates," Working Papers 17-10, Utrecht School of Economics.
    5. Elisa Menicucci & Guido Paolucci, 2016. "The determinants of bank profitability: empirical evidence from European banking sector," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 14(1), pages 86-115, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    profitability; interest rate; spread;
    All these keywords.

    JEL classification:

    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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