It should come as no surprise that banks that primarily issue fixed-rate loans have thus far coped with the low interest rates comparatively well. However, I don’t need to tell you that, as soon as loans and investments with high and fixed interest rates expire and have to be replaced with lower-yielding assets, these banks incur burdens.
Moreover, these banks will suffer from the effects of the low interest rates for longer than banks that mainly grant variable-rate loans – the latter see the benefits more quickly when interest rates go up again. In order to safeguard earnings performance, small and medium-sized institutions need to assess the efficiency of their business model – and better sooner than later.