DO LOW INTEREST RATES MEAN LOW EARNINGS FOR BANKS?

Abstract

The banking sector in developed economies for nearly a decade operates in an environment of low interest rates. This phenomenon is gradually transferring to the Polish banking sector. The article analyzes the mechanism which forces central banks to maintain low interest rates, and the effects of their impact on the banks' earnings in 2008-2014. The study is based on the data published by the central banks in selected countries and Poland. The results show that globalization, outsourcing of significant share of jobs, collecting savings and a lower inflationary pressure are major causes of environmental persistence of low interest rates in developed economies. Low interest rates in these countries have not lowered significantly banks' net interest margin, as well as their overall profitability. Similar behavior of banks can be observed in Poland during the period of cutting interest rates starting from the fourth quarter of 2012.