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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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5 July 2018
20181530748800000
No. 089

Bank Profitability and Risk-Taking in a Low Interest Rate Environment: The Case of Thailand

Abstract

This paper studies the effects of monetary policy on the bank profitability and risk-taking. Using banklevel and account-level data sets of Thai banks during the period 2004–2017, we find that lower interest rates tend to reduce profitability. The effect works mainly through the impact of the interest rates on bank net interest income. At the bank level we find limited evidence of increased riskiness in the overall balance sheet of Thai banks when interest rates are low. However, the account-level results from a duration analysis suggest that low rates may lead to higher loan default risk and lower loan quality for long-term loans, particularly those in the portfolio of small and medium banks. Small firms seem to be more affected by bank risk-taking behavior. We also find that when the interest rate remains low for a protracted period, this tends to further increase bank risk-taking in new loans, though it helps lower the default risk for existing loans. The findings overall point to the potential unintended consequences of a low-for-long monetary policy accommodation with implications on financial stability.

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JEL: E43E52G21
Tags: bank profitabilitybank risk-takinglow interest ratesmonetary policythailand
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Lathaporn Ratanavararak
Lathaporn Ratanavararak
Puey Ungphakorn Institute for Economic Research
Nasha Ananchotikul
Nasha Ananchotikul
Kiatnakin Phatra Financial Group

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

Email: pier@bot.or.th

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