Publication detail

Are European commercial banks more profitable than cooperative banks? Evidence from a low interest rate environment

Author(s): Mgr. Matěj Kuc ,
prof. PhDr. Petr Teplý Ph.D.,
Type: Articles in journals with impact factor
Year: 2022
Number: 0
ISSN / ISBN: 1099-1158
Published in: International Journal of Finance and Economics, USA
Publishing place: John Wiley & Sons Ltd.
Keywords: commercial banks, cooperative banks, low interest rate environment, profitability, risk management
JEL codes: C23, G21, L25
Suggested Citation: Kuc, M., Teplý, P. (2022). Are European commercial banks more profitable than cooperative banks? Evidence from a low interest rate environment. International Journal of Finance and Economics (https://onlinelibrary.wiley.com/doi/abs/10.1002/ijfe.2656).
Grants: GACR 20-00178S - The impact of the normalisation of interest rates on risk management VŠE IP100040
Abstract: Our aim is to compare empirically the profitability of European cooperative and commercial banks in a low interest rate environment. We employ dynamic panel data methods on a data set of nearly 1,000 banks from 11 European countries where both ownership structures compete on the same market. We observed different banking strategies during the 2009-2015 period, when market interest rates reached an all-time low. Our analysis produced four main conclusions. Firstly, we find that commercial banks maintain superior profitability over cooperative banks in an environment of low interest rates. Secondly, commercial banks unjustifiably decreased their loan loss provisioning in a low interest rate environment in order to maintain their profitability. This trend is not present in cooperative banks. Thirdly, decreased provisioning is present mainly in smaller institutions. Fourthly, cooperative banks are significantly more stable than commercial banks in terms of their Z-score in a low interest rate environment. This finding is in line with existing findings during normal interest rates. In addition, the Z-score of cooperative banks increased during the observation period, whereas the Z-score of commercial banks remained stable. Our findings survive a battery of robustness checks. Our results also show differences in the strategies and priorities of both competing ownership types in a low interest rate environment: commercial banks focus on maintaining their profitability by decreasing loan loss provisions, whereas cooperative banks seek to increase their stability. Therefore, regulators pursuing stability in a low interest rate environment should focus on the credit risk management of small commercial banks.
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