Relationship between Interest Rate Changes and Profitability of Banks with Different Currency Composition of Liabilities

Student: Cherepanov Aleksandr

Educational Programme: Economics (Bachelor)

Final Grade: 7

Year of Graduation: 2017

The aim of this research is to analyze the influence of interest rates shocks on banks’ profitability in general as well as on subsamples with high and low shares of foreign currency liabilities. Two hypotheses are examined: one predicts the fall of net interest margin when interest rates increase; the other states that a high share of foreign currency debt decreases the negative influence of interest rates growth on net interest margin. The hypotheses are tested on the sample of 150 largest Russian banks in terms of assets during the period between January 2008 and December 2016. The results of the research prove that the Russian banking sector does negatively react to interest rates growth, but the interest margin of banks with high share of foreign currency liabilities shows a positive dynamics.

Full text (added May 10, 2017)

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