Demographical structural change and Bank’s Interest rate spread

Abstract

This paper contributes to the literature dealing with ageing population and banks by modeling the impact of ageing population on bank’s interest rate spread. Findings disclose that five key forces determine the interest rate spreads of banks, namely, scope economies, ageing population impacts both on the price and level of loans and on the price and level of deposits. The validity of the model is substantiated through different tests with real world calibrated data depicting a rather difficult state of banks following rising old age dependency ratio. Policy-wise banks should strive to accomplish higher scope economies by tapping on more technology-driven services such as metaverse, online delivery of services and sharing economy, all geared towards bolstering the economic health of banks in light of such a phenomenon.