Testing the stability of money demand function in Lesotho

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

“…The credit portfolio of banks grew by 12. 4% from M5.8 billion in 2017 to M6.5 billion in 2018 (CBL, 2019; Damane, 2019a; Damane et al, 2018; Molapo & Damane, 2016).…”

“…These financial system reforms were necessitated by such developments as evolving macroeconomic dynamics (e.g., variable inflation rates, the establishment of a central bank, 6 growing overlap in services offered by financial institutions, etc. ), parliamentary legislative initiatives to protect depositors and foster economic development, conversion of the Post Office Savings Bank to the Lesotho Commercial Bank as well as changes in technology that enables a broadening of financial services and geographical areas over which financial services are delivered (Anchang, 2016; Ayaya, 1997; CBL, 2019; Damane, 2019a; Damane et al, 2018; Molapo & Damane, 2016; Mowatt, 2001). Between 2014 and 2018, domestic banks introduced and launched mobile and internet banking services that allow banks' clients to access various financial services remotely.…”

“…Unlike other econometric techniques, the ARDL approach does not require pre‐testing for unit roots. Although the technique works well when variables are integrated of different order, I (0), I (1) or a combination of both, unit root testing is conducted to ensure that the variables are not integrated of order two, that is I (2), since the ARDL technique crashes in the presence of I (2) variables (Damane et al, 2018; Nkoro & Uko, 2016; Obeng & Sakyi, 2017; Sheriff & Amoako, 2014). The study made use of the Augmented Dickey–Fuller (ADF) test (Dickey & Fuller, 1981) and the Phillips and Perron (PP) test (Phillips & Perron, 1988) to determine the order of integration of the variables.…”

“…The interest rate spread or interest margin is the difference between the interest charged on loans and the interest paid on deposits. As profit-making institutional units, banks would want to pay lower interest on deposits while charging higher interest on borrowers, thus creating a positive spread (Damane, 2019a(Damane, , 2019bDamane, Sekantsi, & Molapo, 2018;Khan & Jalil, 2020;Männasoo, 2013;Molapo & Damane, 2016;Obeng & Sakyi, 2017;Sheriff & Amoako, 2014;Tarus, Chekol, & Mutwol, 2012).…”