Publication detail

Key Determinants of Net Interest Margin of EU Banks in the Zero Lower Bound of Interest Rates

Author(s): Mgr. Petr Hanzlík ,
prof. PhDr. Petr Teplý Ph.D.,
Type: IES Working Papers
Year: 2019
Number: 2
ISSN / ISBN:
Published in: IES Working Papers 2/2019
Publishing place: Prague
Keywords: banks, net interest margin, Herfindahl index, interest rates, profitability, system GMM
JEL codes: C33, E43, G21
Suggested Citation: Hanzlik P. and Teply P. (2019): “Key Determinants of Net Interest Margin of EU Banks in the Zero Lower Bound of Interest Rates” IES Working Papers 2/2019. IES FSV. Charles University.
Abstract: In this paper, we analyse a relationship between net interest margin (NIM) of EU banks and market interest rates in a low-interest rate environment. We contribute to the literature when examining a large sample of annual data on 629 banks from EU member countries during the 2011-2016 period, which also covers the period of zero and negative rates. We test three hypotheses and come to the three main conclusions. First, NIM eroded during the whole observed period for all types of investigated banks. Second, a higher market concentration, proxied by the Herfindahl index, leads to higher NIM. Finally, we show a positive concave relationship of NIM with short-term interest rate observed in previous studies, which supports the suspected non-linearity in situation of zero lower bound of interest rates. Contrary to other researchers, we find a negative relationship between NIM and the yield curve slope.
Downloadable: wp_2019_02_hanzlik_teply

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