Exploring the Relationship Between Interest Rates and Bank Profitability in Financial Institutions
##plugins.themes.bootstrap3.article.sidebar##
##plugins.themes.bootstrap3.article.main##
Abstract
This research delves into the intricate relationship between interest rates and bank profitability, aiming to unravel the dynamics, mechanisms, and implications of this critical nexus. Drawing upon empirical evidence, theoretical frameworks, and practical insights, the study investigates the impact of interest rate changes on banks' net interest margins, loan demand, credit quality, and non-interest income streams. Through a systematic analysis of data sources, analytical techniques, and theoretical constructs, we elucidate the heterogeneity across banks in their sensitivity to interest rate fluctuations, considering factors such as business models, market segments, and regulatory environments. The findings of this research hold significant implications for policymakers, financial institutions, investors, and regulators, informing decision-making, risk management, and strategic planning in response to interest rate dynamics. While the study provides valuable insights, it also identifies avenues for future research, including exploring macroprudential implications, fintech disruptions, sustainability considerations, and methodological challenges. As we navigate the evolving landscape of finance and banking, interdisciplinary collaboration, methodological innovation, and stakeholder engagement will be essential for advancing knowledge and fostering resilience within the financial system.
##plugins.themes.bootstrap3.article.details##
Angori, G., Aristei, D., & Gallo, M. (2019). Determinants of banks’ net interest margin: Evidence from the Euro area during the crisis and post-crisis period. Sustainability, 11(14), 3785.
Beer, C., & Gnan, E. (2015). Implications of ultra-low interest rates for financial institutions’ asset liability management–a policy-oriented overview. Monetary Policy and the Economy Q, 2, 52–77.
Bernanke, B. S., & Gertler, M. (1995). Inside the black box: the credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48.
Borio, C., & Gambacorta, L. (2017). Monetary policy and bank lending in a low interest rate environment: diminishing effectiveness? Journal of Macroeconomics, 54, 217–231.
Bresser-Pereira, L. C. (2010). The global financial crisis and a new capitalism? Journal of Post Keynesian Economics, 32(4), 499–534.
El Wassal, K. A. (2013). The development of stock markets: In search of a theory. International Journal of Economics and Financial Issues, 3(3), 606–624.
Elliott, D., Feldberg, G., & Lehnert, A. (2013). The history of cyclical macroprudential policy in the United States.
Friedman, B. M., & Kuttner, K. N. (2010). Implementation of monetary policy: How do central banks set interest rates? In Handbook of monetary economics (Vol. 3, pp. 1345–1438). Elsevier.
Gagnon, J., & Hinterschweiger, M. (2013). Responses of central banks in advanced economies to the global financial crisis. Responding to Financial Crisis: Lessons from Asia Then, the United States and Europe Now, 57–102.
Gaudel, G. (2011). Non Interest Income Effects on Total Income of Commercial Banks in Nepal. Faculty of Management.
Gichure, S. K. (2015). The relationship between non interest income and financial performance of commercial banks in Kenya.
Goddard, J., Molyneux, P., Wilson, J. O. S., & Tavakoli, M. (2007). European banking: An overview. Journal of Banking & Finance, 31(7), 1911–1935.
Goodfriend, M., & McCallum, B. T. (2007). Banking and interest rates in monetary policy analysis: A quantitative exploration. Journal of Monetary Economics, 54(5), 1480–1507.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. Romanian Economic Journal, 14(39).
Homer, S., & Sylla, R. E. (1996). A history of interest rates. Rutgers University Press.
Iacoviello, M. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review, 95(3), 739–764.
Kaldor, N. (1959). Economic growth and the problem of inflation. Economica, 26(104), 287–298.
MacKenzie, D. (2008). An engine, not a camera: How financial models shape markets. Mit Press.
Mikalef, P., Krogstie, J., Pappas, I. O., & Pavlou, P. (2020). Exploring the relationship between big data analytics capability and competitive performance: The mediating roles of dynamic and operational capabilities. Information & Management, 57(2), 103169.
Neumeyer, P. A., & Perri, F. (2005). Business cycles in emerging economies: the role of interest rates. Journal of Monetary Economics, 52(2), 345–380.
Olokoyo, F. O. (2011). Determinants of commercial banks’ lending behavior in Nigeria. International Journal of Financial Research, 2(2), 61.
Picker, A. D. (2011). International economic indicators and central banks. Wiley+ ORM.
Sanya, S., & Wolfe, S. (2011). Can banks in emerging economies benefit from revenue diversification? Journal of Financial Services Research, 40, 79–101.
Staikouras, S. K. (2003). The interest rate risk exposure of financial intermediaries: A review of the theory and empirical evidence. Financial Markets, Institutions & Instruments, 12(4), 257–289.
Turner, P. (2018). The macroeconomics of macroprudential policies. Macroprudential Policy and Practice, 19–45.
Vogl, J. (2017). The ascendancy of finance. John Wiley & Sons.
Williams, E. (2020). Heterogeneity in net-interest income exposure to interest rate risk and non-interest expense adjustment. Available at SSRN, 3559364.
Yakhlef, A. (2001). Does the Internet compete with or complement bricks‐and‐mortar bank branches? International Journal of Retail & Distribution Management, 29(6), 272–281.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.