Spanish deposit-taking institutions’ net interest income and low interest rates

Abstract

This article reviews how Spanish deposit-taking institutions’ net interest income has evolved in recent years and explores the main underlying factors, which include the low levels of interest rates. For this purpose, three alternative breakdowns of net interest income are considered. The first shows how the volume of credit and the non-performing loan ratio have been as –or more– significant than net income per unit of assets in explaining the performance of net interest income since the start of the crisis. The second shows the historical importance for Spanish institutions of implicit income from payment services and its loss of significance in the current context of negative short-term market rates. The third illustrates how, since the onset of the crisis, there has been a rise in the yield spread between new lending and interbank rates, which may be partly due to the way in which institutions are responding to low interest rates