Interest Rate Deregulation and the Performance of Deposit Money Banks in Nigeria from 1989-2020

The research examined interest rate deregulation and the performance of deposit money banks in Nigeria for the period of 1989-2020. The objective of the study is to examine the impact of interest rate deregulation on the performance of deposit money banks in Nigeria and to examine the causal relationship between interest rate deregulation and performance of deposit money banks in Nigeria. The estimation output of the research shows a positive relationship between interest rate and bank performance in Nigeria measured by Total Assets of Deposit money banks in Nigeria. The coefficient of determination (67%) also shows above average explanatory power of the independent variables on the dependent variable. The results of the study show a long and short run relationship between the dependent variable (Total Assets) and the independent variables (Interest rate, inflation rate, loans and advances). The result also shows unidirectional causality between Total Assets and Loans and Advances. The research recommended among others that the CBN should consider not frequently changing the MPR (monetary policy rate) and CRR (Cash reserve ration) which most of the time influence interest rate peg of the deposit money banks.

Interest Rate Deregulation and Performance of Deposit Money Banks: Time Series Evidence from Nigeria

This work investigated the relationship between interest rate deregulation and performance of Nigerian deposit money banks for the period 1996-2018. Interest rate deregulation was disaggregated into prime lending rate, maximum lending rate, 3-months deposit rate and over 12-months deposit rate while return on assets (ROA) was used as a proxy for deposit money banks’ performance. Data on the above variables were sourced from the Central Bank of Nigeria Statistical Bulletin (2018 edition) and the World Bank data base. The data were tested for stationarity using the Dickey-Fuller (D-F) test, for long-run relationship using Bound’s co-integration test, and for reliability of ARDL results using serial correlation, heteroscedasticity and normality tests. The results of the tests revealed that all the variables were integrated of order zero or one, and that a long-run relationship exists between the variables. Consequently, ARDL model for parameter estimation process revealed that only prime lending rate was positively related to ROA of banks while none of the explanatory variables was statistically significant. The researcher then submitted that there is no significant relationship between interest rate deregulation and the performance of Nigerian deposit money banks for the period considered. Hence, deposit money banks should strive to mobilize adequate savings from surplus spenders by offering them deposit rates that are capable of inducing savers to increase their savings and boost the availability of loanable funds. Also, there is urgent need to restructure the Nigerian financial system whereby policies by the monetary authorities will achieve pre-determined goals. In essence, to make interest rate policies meaningful, there is need to curtail financial transactions that escape the banking system.

Interest Rate Deregulation, Financial Development and Economic Growth: Evidence from Bangladesh

This article analyses the relationship among interest rate reforms, financial development and economic growth by using annual dataset for the period covering 1980–2014 for Bangladesh. The effect of interest rate reforms on financial development is examined using a financial deepening model, and the causal relationship between financial development and economic growth is examined, by including deposit interest rate as a third variable, thereby forming a simple trivariate causality model. The empirical results of cointegration and error correction models show that there is a positive effect of deposit rate of interest rate on financial depth in Bangladesh. Besides, multivariate Granger causality tests reveal that there is only one-way causality between financial depth and economic growth—the flow running from financial depth to economic growth. In addition, the study finds there is bidirectional causality between deposit rate of interest rate and economic growth, which is also confirmed by the pairwise Granger causality test. The inference of this study is that a deregulated deposit rate of interest will raise financial depth and eventually enhance the economic growth of Bangladesh. Therefore, the financial reforms should be directed towards accomplishing a more deregulated deposit rate of interest for progressive growth in the economy of Bangladesh.

Interest rate regulation, earnings transparency and capital structure: evidence from China

Purpose The purpose of this paper is to use samples from Chinese-listed companies to investigate the effects of interest rate deregulation and earnings transparency on company’s capital structure in China over the period of 2003–2015. In particular, the authors study the link between state-owned enterprises (SOEs), economic growth targets and marketization in China’s unique institutional context. Design/methodology/approach Based on the methodology of quantitative analysis, the authors use baseline and cluster analysis for all samples with full set of controls, for robustness tests of alternative proxy of interest rate control by using a cluster analysis at the firm level, regarding endogeneity tests conducted fixed effect model with adding instrument variables (IV), two-period factors regression method via IV and system generalized method of moments for dynamic analysis. Findings The results show that earnings transparency increases firm leverage and the additional tests suggest that such an effect takes place via a mechanism by reducing the cost of debt finance. However, information transparency could moderate the effects of interest rate deregulation on corporate capital structure. In addition, it finds that SOEs are less sensitive toward the changes of interest rates in China because lending to SOEs is policy-oriented and lacks of market evaluation of business risk. Government control is conducive to enhancing the transparency of the whole industry; however, market-oriented reform is conducive to enhancing the transparency of the company’s own information. Research limitations/implications The paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context, such as taking the progressive interest rate reform, SOES, different economic growth target and different marketization level in each province of China. The authors suggest that investors will pay more attention to the company’s own unique information transparency in the provinces with a high degree of marketization. As a potential direction for future research, the authors will investigate how the earnings transparency has impact on capital structure, and how such impact would depend on the transparency of specific business, the cap of foreign shareholding and the convenience of investment. Practical implications This research would be the target of banking market reform in order to bring a fair financing environment for all businesses in China. It implies that current experiment of interest rate liberalization in China is not as efficient as it could be in allocating funds across all businesses. State banks, SOEs and local governments are still the biggest players on both the demand and supply sides of the Chinese credit markets. Social implications The social implication of this paper lies in the fact that first, it provides additional evidence on the effect of market-oriented reforms through how the information transparency interacts with the financial decisions making of corporations. Second, it offers policy implication to banking market deregulation in China. Originality/value The paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context. This research tests the existing literature, such as Francis et al. (2004) and Zhang and Lu (2007), and suggests that informationally transparent firms have a higher debt ratio and lower effective interest costs on bank loans. In addition, this paper further explores the role played by interest rate deregulation in corporate finance, and in turn market fund allocation. This paper sheds new light on information transparency and explores the relationship between earnings disclosure quality and debt financing behaviors of Chinese publicly listed companies over the period of 2003–2015.