Investigating the determinants of commercial bank interest rate spreads in Lesotho: Evidence from autoregressive distributed lag (ARDL)andnon‐linear ARDLapproaches

Abstract

This article investigates the determinants of commercial bank interest rate spreads in Lesotho using monthly time series data from January 2009 to December 2018. The Autoregressive Distributed Lag (ARDL) bounds testing approach is used to measure long‐run co‐integration while the non‐linear ARDL (NARDL) model is used to test validity of long‐run symmetric effects. The bounds tests revealed existence of long‐run co‐integration between the study variables. Inflation and the Treasury bill rate have a positive and statistically significant impact on interest margins while the deposit rate has a negative and significant effect. The pass‐through of inflation and the deposit rate to interest margins is less than one, respectively. This confirms that inflation affects banks' lending rates with a second round effect while deposit liabilities are not the only source of credit financing for banks. The null hypothesis of long‐run symmetry is rejected for Treasury bill rates. Authorities are advised to ensure price and general macroeconomic stability while also pursuing policies aimed at maximizing savings.

Determinants of Interest Rate Spread of Nepalese Commercial Banks

“…Finally, the positive influence of GDP shows that banks can increase their IRS when there is economic growth in the country. The positive influence of INF and GDP supports the findings of Claeys and Vander (2008); Sheriff and Amoako (2014); Damane (2020) and Anjom (2021). On the other hand, this finding is opposed with the findings of Ghasemi and Rostami (2015) and Tarus and Manyala (2018).…”

Differentiated impact of spread determinants by personal loan category: Evidence from the Brazilian banking sector

“…environment proxies, and variables related to the market structure of the banking sector, as potential determinants of bank interest margins. Some of these studies use multi-country panel data (e.g., Entrop et al, 2015;Jarmuzek & Lybek, 2020;Lavezzolo, 2020), others adopt a country specific approach (e.g., Almeida & Divino, 2015;Damane, 2020;Maudos & Solís, 2009). However, all of these studies have considered the banks as single product intermediaries, disregarding the portfolio effect demonstrated by Allen (1988).…”