Negative interest rates and its impact on bank's financial performance

Ing. Semen Traksel, LL.M.

Master's thesis

Abstract:

This diploma thesis deals with the issue of the impact of negative interest rates policy on banks’ financial performance in the recent world practice. Selected topic represents relatively recent discussion, and thus, mainly unstudied. Therefore, the purpose of this research is to bring some additional understanding of the monetary transmission mechanism and determine the conclusive outcome of central bank policies by using a cross-country analysis. The main research question of this work is to determine how negative interest rates affect banks’ profitability and general industry stability in several developed countries. Within the processing of selected topic, the knowledge about interest rates’ nature as a complex financial concept will be reviewed, as well as preliminary market conditions for first attempts of introduction of negative interest rates policy. This paper also examines theoretical framework by considering the main channels through which the monetary policy influences banks’ profitability. In addition, in practical part a comparison analysis should be provided related to correlation of financial indicators in the banking sector before and after the transition to the application of the monetary policy of negative rates.

Abstract:

This diploma thesis deals with the issue of the impact of negative interest rates policy on banks’ financial performance in the recent world practice. Selected topic represents relatively recent discussion, and thus, mainly unstudied. Therefore, the purpose of this research is to bring some additional understanding of the monetary transmission mechanism and determine the conclusive outcome of central bank policies by using a cross-country analysis. The main research question of this work is to determine how negative interest rates affect banks’ profitability and general industry stability in several developed countries. Within the processing of selected topic, the knowledge about interest rates’ nature as a complex financial concept will be reviewed, as well as preliminary market conditions for first attempts of introduction of negative interest rates policy. This paper also examines theoretical framework by considering the main channels through which the monetary policy influences banks’ profitability. In addition, in practical part a comparison analysis should be provided related to correlation of financial indicators in the banking sector before and after the transition to the application of the monetary policy of negative rates.

Keywords

Central banks, negative interest rates, stamp scrip, Sweden, Switzerland, theory of interest rates, Zero level bound

Language used: English

Date on which the thesis was submitted / produced: 12. 7. 2022

Thesis defence

• Date of defence: 16. 8. 2022
• Supervisor: Ing. Petr Mach, Ph.D.
• Reader: Ing. Roman Mentlík

University of Finance and Administration

Master programme / field:
Economics and Management / Business Management and Corporate Finance