Interest Margins and Efficiency the Impact of the Crisis Across EU Countries

Posted: 21 Oct 2017

See all articles by Javier Villar Burke

Javier Villar Burke

BBVA Research; Universidade de Santiago de Compostela

Cristina T Plata Garcia

BBVA Research

Date Written: June 28, 2017


Multiple factors have influenced interest margins and administrative costs such as prices effects, volume effects, the asset and liability mixes and the restructuring of the banking system. At the same time expansionary monetary policy led to a decline in both interest revenues and interest expenses for retail activities. Consequently, net interest income for the euro area as a whole has only marginally declined. Therefore, the markets seem to have some automatic stabilisers which smoothen the impacts.

However, monetary transmission has been heterogeneous across countries and for lending and deposit rates and led to a divergence between two groups of countries. In a number of peripheral countries, the interest margin for retail activities have significantly dropped (by up to 50%), while in a number of core countries net interest income have remained rather stable. This has been driven by structural macroeconomic and institutional differences, banking features (particularly the asset and liability mixes) and demand-side factors.

The restructuring of the banking sector also impacted administrative expenses. In most countries, staff expenses decreased; the evolution of general expenses is more mixed. All these dynamics have been driven by three main factors: declining interest rates, funding scarcity and excessive leverage. According to the cost-to-income ratio, bank efficiency has moderately improved particularly among the worst performing countries (e.g. Germany, Denmark, Austria and Belgium) so that a compression in the distribution of countries in terms of efficiency is observed. We observe a correlation between efficiency and interest margins both in 2008 and in 2015.

Keywords: Bank efficiency, Interest margins, Bank business models, European Union, Financial System

JEL Classification: G21, M20, M41, E66

Suggested Citation

Villar Burke, Javier and Plata Garcia, Cristina T, Interest Margins and Efficiency the Impact of the Crisis Across EU Countries (June 28, 2017). Available at SSRN: or

Javier Villar Burke (Contact Author)

BBVA Research ( email )

C/ Azul, 4
Madrid, Madrid 28050


Universidade de Santiago de Compostela ( email )

Avda. Xoan XXIII
15782 Santiago de Compostela

Cristina T Plata Garcia

BBVA Research ( email )

C/ Azul,4. 28050, Madrid
Madrid, MADRID 28050

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