A1 Journal article (refereed)
Impacts of sovereign risk premium on bank profitability : Evidence from euro area (2022)
Junttila, J., & Nguyen, V. C. S. (2022). Impacts of sovereign risk premium on bank profitability : Evidence from euro area. International Review of Financial Analysis, 81, Article 102110. https://doi.org/10.1016/j.irfa.2022.102110
JYU authors or editors
Publication details
All authors or editors: Junttila, Juha; Nguyen, Vo Cao Sang
Journal or series: International Review of Financial Analysis
ISSN: 1057-5219
eISSN: 1873-8079
Publication year: 2022
Volume: 81
Article number: 102110
Publisher: Elsevier
Publication country: United States
Publication language: English
DOI: https://doi.org/10.1016/j.irfa.2022.102110
Publication open access: Openly available
Publication channel open access: Partially open access channel
Publication is parallel published (JYX): https://jyx.jyu.fi/handle/123456789/80358
Abstract
We analyse the effects of low and negative interest rates and sovereign risk premium on bank profitability among 154 Eurozone banks during the period 2005–2019. In contrast to some of the results in the previous literature, we find that the euro area banks have not suffered too much from the extremely low and negative interest rate era regarding their net interest margins. However, the overall profitability has lowered clearly during the sample period, and the sovereign risk premium has a robust negative effect on all the overall profitability measures, both with risk-adjustment and without it, but it seems to have an increasing effect on the degree of wholesale funding and loan loss provisions. Hence, the profitability puzzle can be explained by a shift towards low-cost wholesale-based funding. Banks have also exercised more loan loss provisions because of the increment in overall risk of the economy. However, if the negative interest rate era still prevails for long, the banking sector faces serious problems based on our results.
Keywords: interest (economics); interest policy; Eurozone; banks (monetary institutions); profitability
Free keywords: Bank profitability; Sovereign risk premium; Negative interest rates; Unconventional monetary policy
Contributing organizations
Ministry reporting: Yes
Reporting Year: 2022
JUFO rating: 1
