The impact of interest rate risk on the operations of banks in Bosnia and Herzegovina
The primary objective of this paper is to identify factors that have a statistically significant impact on the exposure of banks in Bosnia and Herzegovina to interest rate risk and its effect on business profitability indicators. Therefore, this paper investigates the impact of interest rate risk on the performance of banks in Bosnia and Herzegovina between 2014 and 2024. The least squares panel regression model predicts the return on assets and the return on equity of banks in Bosnia and Herzegovina as a function of interest rate risk, which is indexed by the ratio of loans to assets, the average lending ratio, and the risk of interest rate diversification. Empirical findings in the paper revealed that the independent variable, average lending ratio as a measure of interest rate risk based on the method of least squares, has a significantly positive influence on the first and second dependent variables, that is, ROA and ROE, with a significance of less than 5%. The correlation between the risk of interest diversification and the first indicator of profitability (ROA) is positive with a significance of less than 5%, while the correlation between the risk of diversification of interest and the second indicator (ROE) is positive but with a significance of more than 5%. On the other hand, a negative correlation was recorded between the loan-to-assets ratio and the ROA indicator, with a significance greater than 5%. Also, a positive correlation was achieved between the loan-to-assets ratio and the ROA indicator with a probability greater than 5%.