CBA Analysis no. 46

The analysis of time series of total or average values ​​for the banking sector as a whole has shown that the loan interest rates respond to changes in deposit interest rates the strongest. At the same time, the interest rates on corporate loans react more strongly than the interest rates on loans to households.

Changes in financing costs do not spill over entirely to the changes in lending rates. This means that banks absorb part of the increased costs in the periods when the interest rates on deposits are rising, and the interest margin declines. Room for higher margins opens in the periods when the rates on deposits are dropping.

The rise in demand, that is, the growth of real GDP, has a positive impact on the increase in the interest margin. Credit risk and cost efficiency have a similar effect. Euribor rise has a positive effect on the margin, which can be explained by higher earnings on investment of foreign exchange reserves abroad. There is no tie between the lending rates and the interest margins, which means that the banks have not managed to elicit a visible increase in the margins by increasing the interest rates on loans. This is explained by the restrictions on competition and demand.

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