Articles
HOW DOES YIELD CURVE AFFECT BANK PROFITABILITY? EVIDENCE FROM DYNAMIC PANEL DATA ANALYSIS
Osman TÜZÜN- Ramazan EKİNCİ
Published 2019-12-25
Keywords
- Yield curve, Bank Profitability, Net Interest Margin, System GMM
- Getiri Eğrisi, Banka Kârlılığı, Net Faiz Marjı, Sistem GMM
How to Cite
TÜZÜN, O., & EKİNCİ, R. (2019). HOW DOES YIELD CURVE AFFECT BANK PROFITABILITY? EVIDENCE FROM DYNAMIC PANEL DATA ANALYSIS. Business & Management Studies: An International Journal, 7(5), 2596–2609. https://doi.org/10.15295/bmij.v7i5.1383
Abstract
The aim of this study is to analyze the relationship between the profitability of banks and the yield curve. By analyzing the banks of different sizes, the responses of the banks to the yield curve according to the scale size are investigated. The analysis includes 26 deposit banks operating in the Turkish banking sector and annual data for the period 2005-2017. In the study, while the yield curve is estimated with the Nelson-Siegel approach, the net interest margin variable is used to represent the profitability indicator of banks. Empirical findings were estimated by the system GMM approach. The findings show that there is a positive relationship between the slope of the yield curve and the profit margin of the banks. Accordingly, it can be said that the term structure of interest rates and the profit margin of the banks move in the same direction. In small-scale banks, there is no statistically significant relationship between the net interest margin and the slope of the yield curve.
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References
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Albertazzi, U., & Gambacorta, L. (2009). Bank profitability and the business cycle. Journal of Financial Stability, 5(4), 393–409.
Anderson, T., & Hsiao, C. (1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76, 598–606.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277–297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68, 29–51.
Athanasoglou, P., Brissimis, S. N., & Delis, M. D. (2008). Bank‐specific, industry‐specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136.
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Bikker, J. A., & Hu, H. (2002). Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the New Basel Capital requirements. Banca Nazionale del Lavoro Quarterly Review, 55(221), 143–175.
Blanchard, O., Akerlof, G. A., Romer, D., & Stiglitz, J. E. (2014). What have we learned?: Macroeconomic policy after the crisis. MIT Press.
Bolt, W., de Haan, L., Hoeberichts, M., Van Oordt, M. R. C., & Swank, J. (2012). Bank profitability during recessions. Journal of Banking & Finance, 36(9), 2552–2564
Bourke, P. (1989), Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking and Finance, 13(1), 65-79.
Borio, C., Gambacorta, L., & Hofmann, B. (2015). The influence of monetary policy on bank profitability. BIS Working Paper
Claessens, S, N Coleman, & M Donnelly (2018), “‘Low–For-Long’ interest rates and banks’ interest margins and profitability: Cross-Country Evidence”, Journal of Financial Intermediation 35: 1-16.
Choudhry, M. (2008). Analyzing and Interpreting the Yield Curve. Handbook of Finance.
Demirgüç‐Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: Some international evidence. World Bank Economic Review, 13(2), 379–408.
Diebold, F., X. & Li, C. (2006). Forecasting the term structure of government bond yields, Journal of Econometrics. 130(2): 337-364.
English, W. B. (2002). Interest rate risk and bank net interest margins. BIS Quarterly Review, 10, 67–82.
English, W, S van den Heuvel & E Zakrajsek (2012): “Interest rate risk and bank equity valuations”, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, 2012–26.
Estrella, Arturo & Mishkin, Frederic S. (1996), “Is There A Role for Monetary Aggregates in the Conduct of Monetary Policy?” NBER Working Paper 5845
Flannery, M.J. (1981), Market interest rates and commercial bank profitability: An empirical investigation. Journal of Finance, 5, 1085-1101.
Genay, H., & Podjasek, R. (2014). What is the impact of a low interest rate environment on bank profitability?. Chicago Fed Letter
Gürkaynak, R., Sack, B., and J. Wright, 2010, The TIPS Yield Curve and Inflation Compensation, American Economic Journal: Macroeconomics, 2, pp. 70-92.
Hancock, D. (1985), Bank profitability, interest rates, and monetary policy. Journal of Money, Credit and Banking, 17(2), 189-202.
International Monetary Fund (IMF), (2018). A Decade after the Global Financial Crisis: Are We Safer?, Global Financial Stability Reports, October.
Kapinos, P & Musatov, A. (2018). "Smaller Banks Less Able to Withstand Flattening Yield Curve," Economic Letter, Federal Reserve Bank of Dallas, vol. 13(8), pages 1-4, June.
Mishkin, F. S. (2010). The Economics of Money, Banking and Financial Markets. 9th edition. Pearson Educational Limited.
Nelson, C. R. ve Seigel, A.F. (1987). Parsimonious Modeling of Yield Curves. Journal of Business. 60(3): 473-489.
Roodman, D. (2006). How to do xtabond2: An introduction to “difference” and “system” GMM in Stata Working Paper no. 103. Center for Global Development.
Saunders, A., & L. Schumacher, (2000). “The determinants of bank interest rate margins: an international study.” Journal of International Money and Finance Vol.19, pp. 813–832.
Tuzun, O., & Kahyaoglu, H. (2015). Makro İhtiyati Para Politikası Amacı Olarak Finansal İstikrar: Türkiye Üzerine Bir Uygulama. Finans Politik ve Ekonomik Yorumlar, 52(603), 25-45.
Yellen, J. L. (2011). Macroprudential supervision and monetary policy in the post-crisis world. Business Economics, 46(1), 3-12.
Albertazzi, U., & Gambacorta, L. (2009). Bank profitability and the business cycle. Journal of Financial Stability, 5(4), 393–409.
Anderson, T., & Hsiao, C. (1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76, 598–606.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277–297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68, 29–51.
Athanasoglou, P., Brissimis, S. N., & Delis, M. D. (2008). Bank‐specific, industry‐specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136.
Baltagi, B. (2008). Econometric Analysis of Panel Data. Chichester, UK: John Wiley.
Bikker, J. A., & Hu, H. (2002). Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the New Basel Capital requirements. Banca Nazionale del Lavoro Quarterly Review, 55(221), 143–175.
Blanchard, O., Akerlof, G. A., Romer, D., & Stiglitz, J. E. (2014). What have we learned?: Macroeconomic policy after the crisis. MIT Press.
Bolt, W., de Haan, L., Hoeberichts, M., Van Oordt, M. R. C., & Swank, J. (2012). Bank profitability during recessions. Journal of Banking & Finance, 36(9), 2552–2564
Bourke, P. (1989), Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking and Finance, 13(1), 65-79.
Borio, C., Gambacorta, L., & Hofmann, B. (2015). The influence of monetary policy on bank profitability. BIS Working Paper
Claessens, S, N Coleman, & M Donnelly (2018), “‘Low–For-Long’ interest rates and banks’ interest margins and profitability: Cross-Country Evidence”, Journal of Financial Intermediation 35: 1-16.
Choudhry, M. (2008). Analyzing and Interpreting the Yield Curve. Handbook of Finance.
Demirgüç‐Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: Some international evidence. World Bank Economic Review, 13(2), 379–408.
Diebold, F., X. & Li, C. (2006). Forecasting the term structure of government bond yields, Journal of Econometrics. 130(2): 337-364.
English, W. B. (2002). Interest rate risk and bank net interest margins. BIS Quarterly Review, 10, 67–82.
English, W, S van den Heuvel & E Zakrajsek (2012): “Interest rate risk and bank equity valuations”, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, 2012–26.
Estrella, Arturo & Mishkin, Frederic S. (1996), “Is There A Role for Monetary Aggregates in the Conduct of Monetary Policy?” NBER Working Paper 5845
Flannery, M.J. (1981), Market interest rates and commercial bank profitability: An empirical investigation. Journal of Finance, 5, 1085-1101.
Genay, H., & Podjasek, R. (2014). What is the impact of a low interest rate environment on bank profitability?. Chicago Fed Letter
Gürkaynak, R., Sack, B., and J. Wright, 2010, The TIPS Yield Curve and Inflation Compensation, American Economic Journal: Macroeconomics, 2, pp. 70-92.
Hancock, D. (1985), Bank profitability, interest rates, and monetary policy. Journal of Money, Credit and Banking, 17(2), 189-202.
International Monetary Fund (IMF), (2018). A Decade after the Global Financial Crisis: Are We Safer?, Global Financial Stability Reports, October.
Kapinos, P & Musatov, A. (2018). "Smaller Banks Less Able to Withstand Flattening Yield Curve," Economic Letter, Federal Reserve Bank of Dallas, vol. 13(8), pages 1-4, June.
Mishkin, F. S. (2010). The Economics of Money, Banking and Financial Markets. 9th edition. Pearson Educational Limited.
Nelson, C. R. ve Seigel, A.F. (1987). Parsimonious Modeling of Yield Curves. Journal of Business. 60(3): 473-489.
Roodman, D. (2006). How to do xtabond2: An introduction to “difference” and “system” GMM in Stata Working Paper no. 103. Center for Global Development.
Saunders, A., & L. Schumacher, (2000). “The determinants of bank interest rate margins: an international study.” Journal of International Money and Finance Vol.19, pp. 813–832.
Tuzun, O., & Kahyaoglu, H. (2015). Makro İhtiyati Para Politikası Amacı Olarak Finansal İstikrar: Türkiye Üzerine Bir Uygulama. Finans Politik ve Ekonomik Yorumlar, 52(603), 25-45.
Yellen, J. L. (2011). Macroprudential supervision and monetary policy in the post-crisis world. Business Economics, 46(1), 3-12.