Roy Sembel
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Interest rate spread determinant based on the interdependency relationship between a bank’s loan rate and time deposit rate
Vina Nugroho , Roy Sembel , Edison Hulu , Gracia Ugut doi: http://dx.doi.org/10.21511/bbs.17(2).2022.06Banks and Bank Systems Volume 17, 2022 Issue #2 pp. 57-74
Views: 700 Downloads: 333 TO CITE АНОТАЦІЯThis study analyzes the factors responsible for the lower net interest rate at commercial banks located in Indonesia, Thailand and the Philippines. Data were collected from 35, 10 and 13 commercial banks in Indonesia, Thailand, and the Philippines, respectively, from 2012 to 2020 using the Fixed effect model. The Simultaneous Equation Model was used to analyze the macroeconomic factors and banks’ specific characteristics towards Loan and Time Deposit rates. The result showed that macroeconomic factors, such as the inflation rate, significantly affect loan and time deposit rates in these countries. In Indonesia, bank competition should be reduced and banks’ stability should be higher to minimize Net Interest Margin Spread (difference between Loan Rate and Deposit Rate). In the Philippines, banks should increase their capital and liquidity. So, they will be more confident and prudent in lowering their NIM. Thailand’s banking industry has unique characteristics with high monopoly power. The bigger and greater the market share, the larger the interest rate spread on customers. Therefore, regulators in each country need to consider these important variables when making decisions on lowering the net interest rates by banks to enhance social welfare.