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Irish retail bank profitability 2003-20018

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  • Nevin, Ciarán

    (Central Bank of Ireland)

Abstract

This FS Note explores trends in the profitability of the Irish retail banking sector over the past 15 years, using a sample of 39 other EU banks as a comparison group. Changes in the net interest margin (NIM) are decomposed into the share and yield effects on assets and liabilities, respectively. This is the first such decomposition to focus on the banking system in Ireland. The results suggest that the low interest rate environment has coincided with an increase in the NIM of Irish banks but with a decrease in the NIM for a sample of other EU banks. In the case of Irish banks, the increase in the NIM is largely the result of a yield effect on liabilities (cheaper funding). Furthermore, there is some evidence that this effect may be diminishing in recent years.

Suggested Citation

  • Nevin, Ciarán, 2018. "Irish retail bank profitability 2003-20018," Financial Stability Notes 10/FS/18, Central Bank of Ireland.
  • Handle: RePEc:cbi:fsnote:10/fs/18
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    File URL: https://www.centralbank.ie/docs/default-source/publications/financial-stability-notes/no-10-irish-retail-bank-profitability-2003---2018-(nevin).pdf?sfvrsn=4
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    References listed on IDEAS

    as
    1. Claessens, Stijn & Coleman, Nicholas & Donnelly, Michael, 2018. "“Low-For-Long” interest rates and banks’ interest margins and profitability: Cross-country evidence," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 1-16.
    2. Gregory Connor & Thomas Flavin & Brian O'Kelly, 2015. "Restructuring and Recovery of the Irish Financial Sector: An Economic Case History V2," Economics Department Working Paper Series n259-15.pdf, Department of Economics, National University of Ireland - Maynooth.
    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, pages 531-586.
    4. Borio, Claudio & Gambacorta, Leonardo, 2017. "Monetary policy and bank lending in a low interest rate environment: Diminishing effectiveness?," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 217-231.
    5. Holton, Sarah & Kelly, Jane & Lydon, Reamonn & Monks, Allen & O'Donnell, Nuala, 2013. "The Impact of the Financial Crisis on Banks' Net Interest Margins," Economic Letters 01/EL/13, Central Bank of Ireland.
    6. Francisco Covas & Marcelo Rezende & Cindy M. Vojtech, 2015. "Why Are Net Interest Margins of Large Banks So Compressed?," FEDS Notes 2015-10-05, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Gabriele Angori & David Aristei & Manuela Gallo, 2019. "Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period," Sustainability, MDPI, vol. 11(14), pages 1-20, July.

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