Low interest rates place a strain on the banks

Abstract

The current exceptionally low level of interest rates promotes price stability and economic growth in the euro area, but it also puts a strain on retail banking profitability. In Finland, the banks’ most important source of income, net interest income, is now exposed to pressures from several different directions at once. Low interest rates have compressed the spread between lending and deposit rates. At the same time, loan and deposit stocks have increased only slowly. Low interest rates have reduced customers’ debt-servicing expenditure, but may also mask risks.