"Low-for-long" interest rates and net interest margins of banks in Advanced Foreign Economies, Accessible Data
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Figure 1: Range of 3-Month Sovereign Yield by Country (2005-2013)
Note: The figure shows the range of the three-month sovereign yield for each country from 2005-2013. Values used are yearly averages of the implied three-month rate published daily by Bloomberg.
Sources: Bloomberg, staff calculations.
| Country | Minimum 3-Month Sovereign Yield | Median 3-Month Sovereign Yield | Maximum 3-Month Sovereign Yield |
|---|---|---|---|
| Jamaica | 12.25 | 15.11 | 20.61 |
| Turkey | 7.02 | 9.29 | 17.68 |
| Greece | 1.18 | 3.36 | 15.62 |
| Venezuela | 4.37 | 7.24 | 15.05 |
| Indonesia | 4.16 | 6.97 | 10.80 |
| Romania | 4.26 | 6.27 | 10.38 |
| South Africa | 4.92 | 7.01 | 10.08 |
| Colombia | 3.36 | 6.12 | 9.64 |
| Hungary | 4.02 | 7.07 | 9.23 |
| Mexico | 3.92 | 5.86 | 9.23 |
| Portugal | 0.86 | 2.21 | 8.88 |
| India | 4.12 | 6.72 | 8.47 |
| Lebanon | 2.69 | 3.80 | 7.85 |
| New Zealand | 2.49 | 4.24 | 7.48 |
| Russia | 3.55 | 5.53 | 7.03 |
| Lithuania | 1.24 | 2.74 | 6.74 |
| Philippines | 4.64 | 6.38 | 6.38 |
| Australia | 2.61 | 4.63 | 6.32 |
| Poland | 2.71 | 4.36 | 6.09 |
| Croatia | 2.31 | 3.24 | 5.76 |
| United Kingdom | 0.27 | 2.01 | 5.53 |
| Peru | 2.92 | 3.88 | 5.51 |
| Brazil | 0.38 | 2.03 | 5.21 |
| Norway | 1.50 | 2.09 | 5.15 |
| Israel | 0.68 | 1.74 | 5.14 |
| South Korea | 2.29 | 3.36 | 5.02 |
| Bulgaria | 0.28 | 2.55 | 4.89 |
| United States | 0.06 | 0.59 | 4.87 |
| Thailand | 1.37 | 2.70 | 4.70 |
| Austria | 0.00 | 1.72 | 4.57 |
| Ireland | 1.28 | 2.20 | 4.56 |
| Slovakia | 0.37 | 2.41 | 4.37 |
| Denmark | 0.00 | 1.95 | 4.26 |
| Canada | 0.31 | 1.60 | 4.25 |
| Finland | 0.11 | 1.48 | 4.10 |
| Netherlands | 0.04 | 1.34 | 4.00 |
| Italy | 0.54 | 2.09 | 3.99 |
| Spain | 0.44 | 2.05 | 3.98 |
| Belgium | 0.08 | 1.55 | 3.97 |
| France | 0.08 | 1.41 | 3.97 |
| Germany | 0.03 | 1.32 | 3.94 |
| Sweden | 0.33 | 1.60 | 3.86 |
| Czech Republic | 0.13 | 1.82 | 3.79 |
| Hong Kong | 0.08 | 0.24 | 3.74 |
| China | 1.01 | 2.38 | 3.08 |
| Singapore | 0.23 | 0.56 | 2.79 |
| Switzerland | 0.02 | 0.23 | 2.20 |
| Japan | 0.01 | 0.09 | 0.45 |
Figure 2: Balance Sheet Composition
Source: Bankscope, staff analysis.
| Low Environment | High Environment | |
|---|---|---|
| Loans over Deposits | 131.21 | 119.30 |
| Loans over Assets | 58.23 | 59.68 |
| Leverage Ratio | 8.02 | 11.28 |
| Deposits over Liabilities | 91.77 | 81.69 |
| Securities over Assets | 22.81 | 17.97 |
Figure 3: Banks' NIM and Profitability
Source: Bankscope, staff analysis.
| Low Environment | High Environment | |
|---|---|---|
| Net Interest Margin | 2.112614 | 3.645805 |
| Return on Assets | 0.273488 | 0.892762 |
Figure 4: Effect of 1 p.p. Decrease in 3-Month Yield
Note. The figure above reflects average differences among banks and estimated effects of a decrease in the three-month sovereign yield, respectively, for banks in a "low" rate environment and a "high" rate environment.
| Low Environment | High Environment | |
|---|---|---|
| Net Interest Margin | -17.1 | -9 |
| Interest Income Margin | -63 | -35.2 |
| Interest Expense Margin | -49.2 | -29 |
Figure 5: Effect of 1 p.p. Decrease in 3-Month Sovereign Yield, by Duration
Note. The figure shows the estimated effect of a 1 percentage point decrease in the three-month sovereign yield on a bank's net interest income margin and interest expense margin adjusted for interest rate environment and a bank's balance sheet maturity. A bank is classified as having a "long" maturity if it has an average balance sheet maturity over the sample period greater than the median maturity for banks in its country, and is classified as having a "short" maturity otherwise. Assets are used to determine maturity for the interest income margin, while liabilities are used for the interest expense margin. This figure only includes those countries with over 100 banks reporting maturity information.
Sources: Bankscope, staff calculations.
| Low Environment | High Environment | |
|---|---|---|
| Interest Income Margin - Short Maturity | -92.2 | -37.7 |
| Interest Income Margin - Long Maturity | -64.4 | -23.4 |
| Interest Expense Margin - Short Maturity | -78.7 | -56.1 |
| Interest Expense Margin - Long Maturity | -33.1 | -59.5 |
Figure 6: Change in NIM in a Low Rate Environment
Note. The figure above reflects the average change in net interest margins between the year prior to entering the low interest rate environment and each successive year after entering a low rate environment, t=1 through t=4.
Sources: Bankscope, staff analysis.
| t=1 | t=2 | t=3 | t=4 | |
|---|---|---|---|---|
| Percent of NIM | -0.59172 | -0.87352 | -3.07383 | -6.26781 |
Appendix Figure 1: Country Assignments by "Low" vs "High" 3-Month Sovereign Rate
Note: The figure shows how countries were classified for three years in the sample from 2005-2013. A country was classified as being in the "low" rate environment if its average three-month implied sovereign yield for that year was less than or equal to 1.25 percent and was classified as being in a "high" rate environment otherwise.
Sources: Bloomberg, staff calculations.
The table shows which countries are classified as being in a low or high interest rate environment in the years 2005, 2009, and 2013. In 2005 only Japan and Switzerland are in a low rate environment, while the 42 other countries in our sample are in a high rate environment. Those 42 countries are Australia, Austria, Belgium, Brazil, Bulgaria, Canada, China, Colombia, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Jamaica, Lebanon, Lithuania, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, South Korea, Singapore, Slovakia, South Africa, Spain, Sweden, Thailand, Turkey, the United Kingdom, and Venezuela. By 2009 more advanced countries have moved into a low rate environment. In 2009 the 19 countries in a low rate environment are Belgium, Canada, China, Finland, France, Germany, Greece, Hong Kong, Israel, Italy, Japan, the Netherlands, Portugal, Singapore, Slovakia, Spain, Sweden, Switzerland, and the United Kingdom, while the 27 countries in a high rate environment are Australia, Austria, Brazil, Bulgaria, Colombia, Croatia, the Czech Republic, Denmark, Hungary, India, Indonesia, Ireland, Jamaica, Lebanon, Lithuania, Mexico, New Zealand, Norway, Peru, Poland, and South Korea. By 2013 there is an even split with mostly advanced countries in a low rate environment and mostly emerging market countries in a high rate environment. The 21 countries in a high rate environment in 2013 are Austria, Belgium, Brazil, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Portugal, Singapore, Slovakia, Spain, Sweden, Switzerland, and the United Kingdom, while the 21 countries in a high rate environment are Australia, China, Colombia, Greece, Hungary, India, Indonesia, Ireland, Lebanon, Mexico, New Zealand, Norway, Peru, Poland, South Korea, Romania, Russia, South Africa, Thailand, Turkey, and Venezuela.