Interest rate spread determinant based on the interdependency relationship between a bank’s loan rate and time deposit rate
-
DOIhttp://dx.doi.org/10.21511/bbs.17(2).2022.06
-
Article InfoVolume 17 2022, Issue #2, pp. 57-74
- Cited by
- 681 Views
-
327 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This 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.
- Keywords
-
JEL Classification (Paper profile tab)G20, G21
-
References40
-
Tables12
-
Figures0
-
- Table 1. Definition of variables from equation 1
- Table 2. Definition of variables from equation 2
- Table 3. Regression results of the Loan Interest Rate
- Table 4. Regression results of the Time Deposit Rate
- Table A1. Descriptive statistics from equation 1 (Loan Rate)
- Table A2. Descriptive statistics from equation 3 (Time Deposit Rate)
- Table B1. Correlation within variables from equation 1 (Loan Rate – Indonesia)
- Table B2. Correlation within variables from equation 3 (Time Deposit Rate – Indonesia)
- Table C1. Correlation within variables from equation 1 (Loan Rate – the Philippines)
- Table C2. Correlation within variables equation 3 (Time Deposit Rate – the Philippines)
- Table D1. Correlation within variables from equation 1 (Loan Rate – Thailand)
- Table D2. Correlation within variables from equation 3 (Time Deposit Rate – Thailand)
-
- Agapova, A., & McNulty, J. E. (2016). Interest rate spreads and banking system efficiency: General considerations with an application to the transition economies of Central and Eastern Europe. International Review of Financial Analysis, 47, 154-165.
- Ahmad, R., & Matemilola, B. T. (2013). Determinants of bank profits and net interest margins. In C.-W. Hooy, R. Ali, and S. G. Rhee (Eds.), Emerging Markets and Financial Resilience: Decoupling Growth from Turbulence (pp. 228-248).
- Ahokpossi, C. (2013). Determinants of Bank Interest Margins in Sub-Saharan Africa. IMF Working Papers, 13(34), 1.
- Akinlo, A. E., & Owoyemi, B. O. (2012). The Determinants of Interest Rate Spreads in Nigeria: An Empirical Investigation. Modern Economy, 3(7), 837-845.
- Angbazo, L. (1997). Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking. Journal of Banking and Finance, 21(1), 55-87.
- Angori, G., Aristei, D., & Gallo, M. (2019). Determinants of banks’ net interest margin: Evidence from the Euro Area during the crisis and post-crisis period. Sustainability, 11(14), 3785.
- Antão, P. (2009). The interest rate pass-through of the Portuguese banking system: characterization and determinants (Banco de Portugal Working Paper).
- Arping, S. (2017). Deposit competition and loan markets. Journal of Banking and Finance, 80, 108-118.
- Bai, J., Krishnamurthy, A., & Weymuller, C. H. (2018). Measuring Liquidity Mismatch in the Banking Sector. Journal of Finance, 73(1), 51-93.
- Berger, A. N., & Udell, G. F. (2018). Relationship Lending and Lines of Credit in Small Firm Finance. The Journal of Business, 68(3), 351-381.
- Berger, A., & Hannan, H. (1989). The Price-Concentration in Banking. The Review of Economics and Statistics, 71(2), 291-299.
- Berlin, M. (1999). Deposits and relationship lending. Review of Financial Studies, 12(3), 579-607.
- Bikker, J. A., & Gerritsen, D. F. (2018). Determinants of Interest Rate on Time Deposits and Saving Accounts: Macro Factors, Bank Risk and Account Features. International Review of Finance, 18(2), 169-216.
- Calice, P., & Zhou, N. (2018). Benchmarking Costs of Financial Intermediation around the World (Policy Research Working Paper No. 8478). Washington, DC.: World Bank.
- Claeys, S., & Vennet, R. V. (2008). Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West. Economic Systems, 32(2), 197-216.
- De Graeve, F., De Jonghe, O., & Vennet, R. V. (2007). Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets. Journal of Banking and Finance, 31(1), 259-278.
- Doyran, M. A. (2013). Net interest margins and firm performance in developing countries: Evidence from Argentine commercial banks. Management Research Review, 36(7), 720-742.
- Gambacorta, L. (2008). How do banks set interest rates? European Economic Review, 52(5), 792-819.
- Gropp, R., Kok, C., & Lichtenberger, J. D. (2014). The dynamics of bank spreads and financial structure. Quarterly Journal of Finance, 4(4).
- Islam, M. S., & Nishiyama, S. I. (2016). The determinants of bank net interest margins: A panel evidence from South Asian countries. Research in International Business and Finance, 37, 501-514.
- Ivakhnenkov, S., Hlushchenko, S., & Sverenko, K. (2021). Macroeconomic factors that influence the bank loans rate in international and Ukrainian practice. Economics of Development, 19(4), 35-47.
- Jorgensen, O. H. (2013). Brazil’s Bank Spread in International Context from Macro to Micro Drivers (Policy Research Working Paper).
- Kashyap, B. A. K., Stein, J. C., & Wilcox, D. W. (1993). Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance. The American Economic Review, 83(1), 78-98.
- Kiser, E. K. (2004). Modeling the Whole Firm: The Effect of Multiple Inputs and Financial Intermediation on Bank Deposit Rates. Finance and Economics Discussion Series, 2004(7), 1-46.
- Kishan, R. P., & Opiela, T. P. (2000). Bank Size, Bank Capital, and the Bank Lending Channel. Journal of Money, Credit and Banking, 32(1), 121-141.
- Kok, C., & Werner, T. (2006). Bank Interest Rate Pass-Through in the Euro Area: A Cross Country Comparison (ECB Working Paper No. 580).
- Lerner, E. M. (1981). Discussion: The Determinants of Bank Interest Margins: Theory and Empirical Evidence. The Journal of Financial and Quantitative Analysis, 16(4), 601.
- Li, X., & Malone, C. B. (2016). Measuring Bank Risk: An Exploration of Z-Score. SSRN Electronic Journal.
- Manlagnit, M. C. V. (2015). Basel regulations and banks’ efficiency: The case of the Philippines. Journal of Asian Economics, 39, 72-85.
- Maudos, J. (2017). The Business of Banking (pp. 5-33). Palgrave Macmillan.
- Meeampol, S. (2014). Applying Emerging Market Z-Score Model to Predict Bankruptcy: A Case Study of Listed Companies in the Stock Exchange of Thailand (Set), Human Capital without Borders: Knowledge Earning for Quality of Life (pp. 1227-1237).
- Otoritas Jasa Keuangan. (2016). POJK No. 6/POJK.03/2016. Kegiatan Usaha Dan Jaringan Kantor Berdasarkan Modal Inti Bank.
- Owusu-Antwi, G., Banerjee, R., & Antwi, J. (2017). Interest Rate Spread on Bank Profitability: The Case of Ghanaian Banks. Journal of Accounting, Business and Finance Research, 1(1), 34-45.
- Peek, J., & Rosengren, E. S. (1995). Bank Lending and The Transmission of Monetary Policy. Conference Series [Proceedings], Federal Reserve Bank of Boston, 39, 47-79.
- Powell, A. (2004). Basel II and developing countries: sailing through the sea of standards (Policy Research Working Paper No. 3387). Washington, D.C.: World Bank.
- Rajan, R. G., & Petersen, M. A. (1994). The Benefits of Lending Relationships: Evidence from Small Business Data. The Journal of Finance, 49(1), 3-37.
- Saunders, A., & Schumacher, L. (2000). The determinants of bank interest rate margins: An international study. Journal of International Money and Finance, 19(6), 813-832.
- Setiawan, M. I., & Researcher, B. (2010). Challenges and opportunities of BASEL III (pp. 99-136).
- Van den Heuvel, S. J. (2002). Does bank capital matter for monetary transmission? Economic Policy Review (FRBNY), May, 259-265.
- Williams, B. (2007). Factors determining net interest margins in Australia: Domestic and foreign banks. Financial Markets, Institutions and Instruments, 16(3), 145-165.
-
The relationship between e-CRM and customer loyalty: a Kenyan Commercial Bank case study
Eric E. Mang’unyi
,
Oumar T. Khabala ,
Krishna K. Govender 
doi: http://dx.doi.org/10.21511/bbs.12(2).2017.11
Banks and Bank Systems Volume 12, 2017 Issue #2 pp. 106-115 Views: 2948 Downloads: 2574 TO CITE АНОТАЦІЯSince customer loyalty is key, especially in the highly competitive commercial banking environment, this article evaluated the effects of features of electronic customer relationship management (e-CRM) on customer loyalty. Using a cross-sectional survey design, data were collected from a convenience sample of customers of a major international Kenyan bank using self-administered questionnaires. The findings based on correlation and multiple regression analyses, revealed that pre-service, during (the) service and post transactional e-CRM features have a positive and significant relationship with loyalty, and that the pre-service and during service features significantly predict loyalty. Thus, enhancing e-CRM practices could be a strategic competitive tool to impact the banks’ relationship with their customers.
-
Digital financial inclusion: evidence from Ukraine
Svitlana Naumenkova ,
Svitlana Mishchenko ,
Dmytro Dorofeiev
doi: http://dx.doi.org/10.21511/imfi.16(3).2019.18
Investment Management and Financial Innovations Volume 16, 2019 Issue #3 pp. 194-205 Views: 2098 Downloads: 417 TO CITE АНОТАЦІЯThe article examines the influence of the current stage of economy digitalization on the financial inclusion in Ukraine. The purpose is to assess the level of financial inclusion in the country, to determine the dominant influence of price and non-price barriers to access to financial services for the Ukrainian population when compared to other world countries and to define which part of the adult population is able to join the formal financial services system through the use of innovative channels and financial service systems. Based on the methodological approaches proposed by the World Bank and the G20 Financial Inclusion Indicators, the authors analyze the real traditional and digital access opportunities of the general public to financial services in Ukraine compared to other countries across the world. Particular emphasis is placed on overcoming existing non-price barriers that impede formal financial inclusion of the Ukrainian population. The research findings stress the need to adhere to the basic principles of digital financial inclusion in order to regulate activities of financial institutions and their agents in the digital provision of financial services, strengthen regulatory control over the use of innovative financial products and service systems, and protect the rights of consumers of financial services in Ukraine.
-
Assessing the dynamics of fintech in Indonesia
Nofie Iman
doi: http://dx.doi.org/10.21511/imfi.15(4).2018.24
Investment Management and Financial Innovations Volume 15, 2018 Issue #4 pp. 296-303 Views: 1968 Downloads: 519 TO CITE АНОТАЦІЯFinancial technology or commonly known as fintech is relatively a new thing in Indonesia. This article is attempting to capture the dynamics of such technology in Indonesia. This paper was aimed to help researchers and academics who are interested in studying the phenomenon of fintech more broadly. This study is descriptive and exploratory by nature. Data were gathered from secondary sources, as well as interviews with practitioners, policy makers, and users. Data were collected during the period from 2016 to 2018, which was divided into several different stages. The results of the study show that fintech is more than just a phenomenon, it cannot be compared to other start-ups, and has the potential to fundamentally change the business and economic landscape.
