FFA Working Papers 2:002 (2020)1324

The impact of low interest rates on banks’ non-performing loans

Matěj Maivald, Petr Teplý
Charles University Faculty of Social Sciences Institute of Economic Studies
University of Economics, Prague, Faculty of Finance and Accounting

The paper examines the impact of a low interest rate environment on banks’ credit risk measured by the non-performing loan (NPL)/total loans ratio. We analyse a unique sample of annual data on 823 banks from the Eurozone, Denmark, Japan, Sweden, and Switzerland for the 2011-2017 period, which also covers the period of zero and negative rates. We conclude that after 1 year of low interest rates, the NPL ratio increases. Our results are mostly consistent with the findings of previous research, and the majority of differences can be explained by the changes in the economic environment during the period with low interest rates.

Keywords: banks, credit risk, low interest rates, non-performing loans
JEL classification: C33, E43, G21

Received: February 17, 2020; Revised: February 25, 2020; Accepted: February 25, 2020; Prepublished online: March 1, 2020; Published online: January 1, 2020  Show citation

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Maivald, M., & Teplý, P. (2020). The impact of low interest rates on banks’ non-performing loans. FFA Working Papers, 2, Article 2020.002. https://doi.org/10.XXXX/xxx.2020.002
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