Page 27 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.79, # 2, 2022, pp. 19-36

As can be seen from the figure, the relationship between the interest burden and the
bank's profit has been different over time. For this reason, it is necessary to study the
issues of interest rate optimality. Here, in the study pre-tax profit is taken to make
sense of the analysis for analytical purposes.

300 3,00%
250
200 2,50%
150
2,00%
100
50
1,50%
0
2018-01-31 2019-01-31 2020-01-31 2021-01-31
-50
1,00%
-100
-150 0,50%
-200
-250 0,00%
Profit of banking sector Interest burden

Figure 2. Graphical description of change in the profit of banking sector (before
tax) and interest burden over periods (compiled by the author).

Figure 2 shows the graph of changes in the interest burden and profitability of the
banking sector on a monthly basis from June 2020 to December 2021.

During the analysis, a dummy variable was included in the econometric model to take
into account the lockdown effects of the COVID-19 pandemic. On the basis of
econometric assessment, a polynomial regression assessment was fulfilled for
determining the level of optimal interest burden on banking sectors, which gives the
maximum level of profit (earnings) before tax to it. Hence, the extremum values were
found.

Mathematically, if the derivative of the function ( ) is equal to zero at the point ,

0
and the second derivative is negative, then this point is its maximum point. =

44968,6469 − 1562428,87 ∗ = 0. Here, notation of PB is profit before tax of the
b
banking sectors and − is the interest burden. According to the results of the model,

the optimal level of interest burden for the banking sector for the lockdown period
was 2.9%, and for the non-lockdown period was 2.0% (Figure 3).
In terms of analytical purposes, it should be noted that at the end of the study period,
this figure was 1.3%.

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