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Monetary Policy Interest Rates And Bank Riskreturn Tradeoff: How Does Bank Competition Moderate This Relationship?

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  • Japan Huynh

    (Ho Chi Minh City Open University, Vietnam)

Abstract

This study empirically examines the moderating effect of bank competition on the link between monetary policy interest rates and bank risk-return dynamics in Vietnam from 2007 to 2019. The findings suggest that during monetary expansion, marked by decreasing interest rates, banks typically employ a more conservative strategy regarding their credit portfolios, thereby minimizing risk exposure. Nonetheless, this risk avoidance incurs reduced interest margins, decreased overall profitability, and compromised stability. Furthermore, the research utilizing both traditional and funding-adjusted Lerner indices indicates that increased market concentration, or diminished bank competitiveness, mitigates the impact of monetary policy interest rates on the trade-off between bank risk and return.

Suggested Citation

  • Japan Huynh, 2025. "Monetary Policy Interest Rates And Bank Riskreturn Tradeoff: How Does Bank Competition Moderate This Relationship?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 28(2), pages 173-198, July.
    • Handle: RePEc:idn:journl:v:28:y:2025:i:2a:p:173-198
    DOI: https://doi.org/10.59091/2460-9196.2011
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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