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RBA Glossary definition for margin loans

margin loans – Loans which are made to investors to purchase financial assets, usually equities or units in managed funds. These assets are used as security for the margin loan. Margin loan clients are required to keep the ratio of borrowings to the value of underlying security below a pre-arranged level. When the ratio goes above this level, lenders will make a margin call, requiring the borrower to either repay some of the loan or provide additional security to support the loan.

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The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Our analysis confirms the empirical regularity that declining interest rates reduce banks’ net interest margins. ... impact of lower rates on loan-loss provisions and other factors, including an increased focus on cost efficiencies and streamlining
https://www.rba.gov.au/publications/rdp/2023/2023-05.html

The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Loan-loss provisions (LLP). (a). The ratio of LLPs (or impairment expenses) to cover non-performing loans expressed as a percentage of ATA. ... AUS. CAN. CHL. CZE. DEU. FRA. NOR. POL. SWE. CHE. Net interest margin (NIM).
https://www.rba.gov.au/publications/rdp/2023/2023-05/full.html

Appendix A: Summary of Selected Bank-level Papers

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Lower rates have a negative impact on net interest margins, which is offset by a positive impact on loan-loss provisions. ... Federal Deposit Insurance Corporation. Panel GMM estimation. Lower interest rates compress net interest margins, but lower
https://www.rba.gov.au/publications/rdp/2023/2023-05/appendix-a.html

Introduction

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
demand. All else equal, lower interest rates are likely to directly impact bank profitability by eroding banks' net interest margins (NIMs). ... Lower interest rates can decrease loan-loss provisions by reducing the cost of servicing debt and lowering
https://www.rba.gov.au/publications/rdp/2023/2023-05/introduction.html

Empirical Findings across Countries

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
AUS. CAN. CHL. CZE. DEU. FRA. NOR. POL. SWE. CHE. Net interest margin (NIM). ... FRA. SWE. CHE. Net interest margin (NIM). r. 0.018. 0.036. 0.331.
https://www.rba.gov.au/publications/rdp/2023/2023-05/empirical-findings-across-countries.html

References

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Busch R and C Memmel (2015), ‘Banks' Net Interest Margin and the Level of Interest Rates’, Deutsche Bundesbank Discussion Paper No 16/2015. ... Molyneux P, A Reghezza and R Xie (2019), ‘Bank Margins and Profits in a World of Negative Rates’,
https://www.rba.gov.au/publications/rdp/2023/2023-05/references.html

Non-technical summary for ‘The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country…

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
A key takeaway from our investigation is that the effect of a decline in interest rates on banks' net interest margins – a component of overall profitability – is small, economically speaking. ... In addition to this, banks found other ways to offset
https://www.rba.gov.au/publications/rdp/2023/2023-05/non-technical-summary.html

Data Description

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Net interest margin (NIM). The ratio of net interest income (NII) expressed as a percentage of average interest earning assets (AEA). ... Loan-loss provisions (LLP). (a). The ratio of LLPs (or impairment expenses) to cover non-performing loans expressed
https://www.rba.gov.au/publications/rdp/2023/2023-05/data-description.html

Overview of the Data and Methodology

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
We focus on four different dependent variables: the return on assets (ROA), the NIM, non-interest income (Non-II) and loan-loss provisions (LLPs). ... International Settlements global systemically important banks (G-SIB) assessment sample – could have
https://www.rba.gov.au/publications/rdp/2023/2023-05/overview-of-the-data-and-methodology.html