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Negative Interest Rates, Bank Profitability and Risk-taking

Author

Listed:
  • Whelsy Boungou

    (UB - Université de Bordeaux)

Abstract

Using a panel dataset of 2442 banks operating in the 28 EU countries over the period from 2011 to 2017, this paper aims to assess the impact of negative interest rates on banks‟ profitability and risk-taking. Using dynamic panel models, we find that the effect of negative interest rates on banks' margins is stronger compared to an environment of positive rates. We notice that negative rates have squeezed banks' net interest margins. We also find that banks have offset the effects on margins by increasing non-interest income. Furthermore, negative interest rates contributed to a reduction in banks' risk-taking. Finally, we note that the effects of negative rates on profitability and risk-taking differ among banks, depending on their specific balance sheet characteristics.

Suggested Citation

  • Whelsy Boungou, 2019. "Negative Interest Rates, Bank Profitability and Risk-taking," Working Papers hal-03456106, HAL.
    • Handle: RePEc:hal:wpaper:hal-03456106
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    Cited by:

    1. Boungou, Whelsy & Hubert, Paul, 2021. "The channels of banks’ response to negative interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    2. Boungou, Whelsy, 2021. "Empirical evidence of the lending channel of monetary policy under negative interest rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 309-318.
    3. Oliver de Groot & Alexander Haas, 2020. "The Negative Interest Rate Policy Experiment," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(01), pages 7-12, April.
    4. Davis, E Philip & Ali Abdilahi, Ridwa, 2022. "Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa," National Institute of Economic and Social Research (NIESR) Discussion Papers 536, National Institute of Economic and Social Research.
    5. Ozili, Peterson, 2021. "Bank profitability determinants: comparing the United States, Nigeria and South Africa," MPRA Paper 105638, University Library of Munich, Germany.
    6. W. A. Razzak, 2021. "Measuring the effect of negative interest rate on New Zealand banks," SN Business & Economics, Springer, vol. 1(3), pages 1-23, March.
    7. Whelsy Boungou & Charles Mawusi, 2023. "Bank lending margins in a negative interest rate environment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 886-901, January.
    8. Tiago Araújo & Óscar Afonso & Pedro Cunha Neves & Elena Sochirca, 2025. "International spillovers of unconventional monetary policy: A meta-analysis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 24(2), pages 205-224, May.
    9. López-Penabad, Maria Celia & Iglesias-Casal, Ana & Silva Neto, José Fernando, 2022. "Effects of a negative interest rate policy in bank profitability and risk taking: Evidence from European banks," Research in International Business and Finance, Elsevier, vol. 60(C).

    More about this item

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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