scholarly journals Impact of Macroeconomic and Bank Specific Variables on Spread of Interest Rate: A Study of Listed Commercial Banks in Bangladesh

2020 ◽  
pp. 148-156
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Banking System ◽  
Money Market ◽  
High Interest Rate ◽  
High Interest ◽  
Income Sources ◽  
Interest Rate Spread ◽  
The Difference ◽  
Indirect Impacts

The Banking system of a country provides the lifeblood to the efficient and effective functioning of an economy. Therefore it is crucial to understand the lending and borrowing rates and hence the spread of interest rates in the banking and financial sector. The Spread of Interest rate is the difference between loan rates and the deposit rates of a bank. High-interest rate reflected in the spread of a high-interest rate will immensely disrupt and cause adverse consequences in the whole economy. Both the spread of interest rate and the interest margin show that the intermediation cost is higher in Bangladesh. High-interest margins in a banking system are indicative of deep-rooted symptoms of inefficiency, absence of competition, non-diversification of income sources, and skewed development of money and capital market in favor of banks’ lending and inflexibility of rate adjustments symmetrically in response to market changes. Moreover, a frequent financial scam in Bangladesh has added more troubles in the money market of Bangladesh. For example, Hallmark scam of almost 4000 crore taka of Sonali Bank, a financial scam of Abdul Mannan, CEO of BIFC, amounted to around 950 crore taka, around 4500 crore taka scam of Janata bank and Agrani bank have made our money market and financial market susceptible to failure. These events have some direct or indirect impacts on interest rates. Hence, I have felt the importance of identifying the determinants of the spread of interest rates. Understanding the determinants of the spread of interest rates would enable us to eliminate such unnecessary costs in financial intermediation, which would be the result in operational and administrative efficiency, resulting in financial viability, stability, and economic growth. Therefore, we need to know the determinants of the spread of interest rates. Hence, I have been motivated to study the determinants of interest rate spread and their extent of impacts on interest rate spread.

scholarly journals THE DETERMINANTS OF INTEREST RATE SPREAD AMONG COMMERCIAL BANKS IN KENYA

2017 ◽  
Vol 2 (5) ◽  
pp. 29
Author(s):  
Leah Njoroge ◽  
Mercy Warui ◽  
Catherine Mbogo ◽  
Margaret Chiera ◽  
Dr. Chogii
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Market Structure ◽  
Significant Relationship ◽  
Commercial Banks ◽  
Banking Sector ◽  
Unique Contribution ◽  
High Interest Rate ◽  
Interest Rate Spread ◽  
The Interest Rate

Purpose: To establish the determinants of interest rate spread among commercial banks in Kenya. Methodology: The study utilized a descriptive survey research design. Findings: The results indicated that the commercial banking sector has witnessed a gradual rise in the Interest rate spread. Results also showed that the mean of market structure has been fluctuating with year (2010) being the lowest with mean of 4 and year (2012) being the highest with mean 12. Results also showed that there was no regulation from the year (2005) to the year (2009) but it was later adopted whereas regulations shoot steadily to mean of 1.0 in the year (2009) and remained in the same level the rest of the years. The regression results indicate that there is a positive and significant relationship between market structure, credit risk and interest spread. The regression results also indicated that there is a positive but insignificant relationship between access to information and interest spread. Further, the results indicated that there is a negative and significant relationship between regulation and interest spread. Unique contribution to theory, practice and policy: The study is important to the management of Commercial banks as it will provide an insight on the factors influencing interest rate spread among commercial banks in Kenya. The results of this study will provide information to policy makers and other stakeholders in the financial sector (especially the banks) to come up with strategies that help in dealing with the high interest rate spread experience in the banking sector and thus improve on the financial performance of the organisations. It may be used as a tool for persuading commercial banks to reduce their interest rates spread and hence increase their volume of business, which of course would compensate the loss in the interest rate spread. The study will also be invaluable to the government and CBK. This is because the monetary policy framework of Central Bank of Kenya and its implementation will be guided by a need to ensure, among others: realistic interest rate spreads that encourage financial deepening and a safe, sound, efficient and competitive banking system through discreet risk management. These findings therefore might influence the effectiveness of economic policies. The research results will also be important to scholars and researchers as it will add to the existing pool of knowledge.

Consequences of a High Interest Rate Policy in the Process of Disinflation. The Case of Poland

1998 ◽  
Vol 9 (1) ◽  
pp. 15-31 ◽  
Author(s):  
Alojzy Z. Nowak ◽  
Kazimierz Ryć ◽  
Jerzy Żyżński
Keyword(s):  
Interest Rate ◽  
Banking Sector ◽  
Banking System ◽  
Research Programme ◽  
Open Market ◽  
High Interest Rate ◽  
Interest Rate Policy ◽  
The Real ◽  
High Interest ◽  
Rate Policy

The aim of the article is to analyse the consequences of a high interest rate policy pursued in Poland since 1990 in the process of disinflation. The interest rate was the main instrument of monetary policy in a situation when the economy lacked a money market on which the money supply could be influenced directly by open market operations. The application of a high interest rate had many unfavourable consequences both in the real sphere and in the financial sphere. The most important of these consequences in the real sphere was that it forced self-financing on the part of enterprises, the ineffective allocation of resources, delays in carrying out investments, the cyclicity of demand; the effects in the financial sphere mainly concern the banking sector, where the assets of the banking system become distorted, while for enterprises the most important consequences result from the high cost of credit, which increases costs and reduced the competitiveness of enterprises dependent on credit. The authors analyse these consequences and formulate hypotheses and a research programme for testing them.

scholarly journals Effectiveness of high interest rate policy on exchange rates: A reexamination of the Asian financial crisis

2006 ◽  
Vol 2006 ◽  
pp. 1-9 ◽  
Author(s):  
Tim Brailsford ◽  
Jack H. W. Penm ◽  
Chin Diew Lai
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Exchange Rates ◽  
Interest Rates ◽  
Asian Financial Crisis ◽  
The Philippines ◽  
High Interest Rate ◽  
Interest Rate Policy ◽  
High Interest ◽  
Rate Policy

One of the most controversial issues in the aftermath of the Asian financial crisis has been the appropriate response of monetary policy to a sharp decline in the value of some currencies. In this paper, we empirically examine the effects on Asian exchange rates of sharply higher interest rates during the Asian financial crisis. Taking account of the currency contagion effect, our results indicate that sharply higher interest rates helped to support the exchange rates of South Korea, the Philippines, and Thailand. For Malaysia, no significant causal relation is found from the rate of interest to exchange rates, as the authorities in Malaysia did not actively adopt a high interest rate policy to defend the currency.

scholarly journals The impact of interest rate spread on the banking system efficiency in South Africa

2018 ◽  
Vol 6 (1) ◽  
pp. 1546417
Author(s):  
Varaidzo batsirai Shayanewako ◽  
Asrat Tsegaye ◽  
Christian Nsiah
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Banking System ◽  
System Efficiency ◽  
Interest Rate Spread ◽  
The Impact

scholarly journals Does the Interest Rate Form Business Cycle?

2019 ◽  
Vol 4 (1) ◽  
pp. 29-34
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
The Usa ◽  
Rate Form ◽  
The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

scholarly journals Reforming LIBOR and Other Financial Market Benchmarks

2015 ◽  
Vol 29 (2) ◽  
pp. 191-212 ◽  
Author(s):  
Darrell Duffie ◽  
Jeremy C. Stein
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Banking System ◽  
Economic Role ◽  
News Reports ◽  
Legal Risks ◽  
The Difference ◽  
The Interest Rate ◽  
Orderly Transition

LIBOR is the London Interbank Offered Rate: a measure of the interest rate at which large banks can borrow from one another on an unsecured basis. LIBOR is often used as a benchmark rate— meaning that the interest rates that consumers and businesses pay on trillions of dollars in loans adjust up and down contractually based on movements in LIBOR. Investors also rely on the difference between LIBOR and various risk-free interest rates as a gauge of stress in the banking system. Benchmarks such as LIBOR therefore play a central role in modern financial markets. Thus, news reports in 2008 revealing widespread manipulation of LIBOR threatened the integrity of this benchmark and lowered trust in financial markets. We begin with a discussion of the economic role of benchmarks in reducing market frictions. We explain how manipulation occurs in practice, and illustrate how benchmark definitions and fixing methods can mitigate manipulation. We then turn to an overall policy approach for reducing the susceptibility of LIBOR to manipulation before focusing on the practical problem of how to make an orderly transition to alternative reference rates without raising undue legal risks.

Basel I to Basel III: Impact of Credit Risk and Interest Rate Risk of Banks in India

2018 ◽  
Vol 17 (1_suppl) ◽  
pp. S83-S111 ◽  
Author(s):  
Noor Ulain Rizvi ◽  
Smita Kashiramka ◽  
Shveta Singh
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Interest Rates ◽  
Banking System ◽  
Interest Rate Risk ◽  
Theoretical Background ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Rate Risk ◽  
Net Interest Margin

The study explores the theoretical background of Basel III and investigates the drivers of interest rate risk and credit risk of banks in various parlances, namely, pre and post the financial crisis, phases of implementation and ownership on a sample of 36 listed banks in India. The findings indicate that the high capital adequacy requirement (CAR) exhibits a positive relation with gross non-performing assets (GNPAs) and net interest margin (NIM). This is perhaps one of the major drawbacks of Basel implementation, which may become a cause of lower GDP in the future as explained in the findings of the literature. Originality/value: This article is perhaps the first attempt of its kind to empirically examine the bank-specific, macroeconomic variables and link it with the Basel implementation in the Indian banking system for the time period 2002–2015. This study endeavours to enhance the existing empirical research in the field and give insights into the role of various factors on GNPAs and interest rates (with regards to Indian banks).

scholarly journals Is the High Interest Rate Combined with Intense Deleveraging Campaign Desirable? A Collateral Mechanism under Stringent Credit Constraints

2018 ◽  
Vol 10 (12) ◽  
pp. 4803 ◽  
Author(s):  
Qiuyi Yang ◽  
Youze Lang ◽  
Changsheng Xu
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Banking Sector ◽  
Housing Prices ◽  
Policy Implications ◽  
Shadow Banking ◽  
High Interest Rate ◽  
Asset Bubbles ◽  
Collateral Constraints ◽  
High Level

Recently, China has witnessed a continuously increasing Debt-to-GDP ratio and a vigorously expanding shadow banking sector. Housing prices hovering at a high level seriously affect the lives of ordinary residents. Disappointingly, a variety of activities such as intense deleveraging campaigns and tight monetary controls produce little effect. Why do these seemingly rightful implementations hardly work? What should governments do to stop the incessant expansion of asset bubbles? What role ought financial supervisors to play in regulating credit markets and facilitating a sustainable and inclusive economic growth? This paper sets off from the pledgeability of asset bubbles and constructs a generalized overlapping generation (OLG) model incorporating financial frictions and collateral constraints, in order to explore the bubble evolution under the alterations of market interest rates and credit conditions. The results show a unique bubble equilibrium, in which the steady-state bubble size expands when interest rate increases. Numerical results further reveal that the bubble-inflation effect of a higher interest rate is reinforced by a more stringent collateral constraint. Our research contributes to an explanation of the inefficacy of present policies and provides the following policy implications: The combination of an interest rate elevation and a strong loan restriction is in fact undesirable for suppressing asset bubbles. Not merely does it strike productivity and capital formation, but it also fosters investors to hold more risky assets to solve liquidity shortage under constrained borrowing capacity.

THE EFFICIENCY-STABILITY TRADE-OFF: THE CASE OF HIGH INTEREST RATE SPREADS IN VENEZUELA

2007 ◽  
Vol 45 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Leonardo VERA ◽  
Luis ZAMBRANO-SEQUÍN ◽  
Andreas FAUST
Keyword(s):  
Interest Rate ◽  
High Interest Rate ◽  
Trade Off ◽  
High Interest ◽  
Interest Rate Spreads
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