Q&A: How Do Low Central Bank Interest Rates Impact Commercial Banks’ Profits?

Q&A: How Do Low Central Bank Interest Rates Impact Commercial Banks’ Profits?
Carl Hazeley

about 3 years ago1 min

Question from Michelle in Malaysia: How do low central bank interest rates impact commercial banks’ profits?

Answer from lead analyst Carl: Simply put, Michelle, lower central bank interest rates reduce the amount of money commercial banks make from loans: the lower "base rate" means borrowers will demand lower interest rates on new loans they take out. A narrower gap between what banks can charge on these new loans and the level of interest they’re already committed to offering savers (their "net interest margin") has a negative effect on profits.

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