The capital ratio and the interest rate spread: A panel threshold regression approach

Golbabaei, Ali; Botshekan, Mahmoud

doi:10.1016/j.qref.2022.04.002

Cited by 3 publications

(2 citation statements)

References 27 publications

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“…The effect of the capitalization ratio to the interest rate spread is positive and stronger for banks with higher capital ratio increases, higher capital contributions, or higher risk-weighted asset contributions to increased capital ratios. The effect of constellation or capital on interest rate spreads is positive and stronger for banks with higher capital ratio increases, higher capital contributions, or higher risk-weighted asset contributions to increased capital ratios (Golbabaei & Botshekan, 2022).…”

Section: The Effect Of Capital On Profitabillity With Interest Rate P...mentioning

confidence: 92%

Moderation of Interest Rate Policy Towards Banking Profitability

Nurfadillah,

Setiadji,

Paminto

et al. 2023

J. Professional Business Review

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Purpose: The study aims to analyze the factors that affect the profitability of the banking industry, by making interest rate policy a moderation. Design/methodology/approach: This study uses Structural Equation Modeling (SEM) analysis with panel data from 31 conventional banks in Indonesia during the period 2017-2021 and groups banks based on their core capital into 3 bank groups, namely small banks, medium banks and large banks. Findings: The results showed that capitalization had a significant negative effect on profitability for small banks and medium banks, significantly positive for large banks. Liquidity risk has a significant negative effect on the profitability of large banks. Credit risk has a negative direction towards profitability, significant for small banks and large banks. The interest rate policy is significantly positive for profitability for small banks and mediating banks, negative for large banks. Interest rate policy is only able to moderate capital and credit risk to profitability for small banks. The results of the study explained that small banks are more sensitive and quick to react to changes in interest rate policy than large banks. Research, Practical & Social implications: The research period includes the pandemic period of 2020 - 2021 where the banking industry is impacted by it, so it is possible that there are several anomalous research results. The research implications suggest that banks as fundraisers and dealers are highly dependent on interest rate policy to generate profitability. Originality/value: This study examines banks based on the core capital group owned, which is one of the first studies to include interest rate policy as a moderation variable that affects profitability.

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Section: The Effect Of Capital On Profitabillity With Interest Rate P...mentioning

confidence: 92%

Moderation of Interest Rate Policy Towards Banking Profitability

Nurfadillah,

Setiadji,

Paminto

et al. 2023

J. Professional Business Review

View full text Add to dashboard Cite

show abstract

“…This increases the risk of requiring a higher interest rate spread to reduce bank losses (Obeng & Skawi, 2016;Hainz et al, 2014). Second, macroeconomic conditions lead to changes in the business cycle, market shock and financial market risk, will affect the demand for credit, risk, profitability and lead to changes in interest rates (Golbabaei & Botshekan, 2022). Third, Gross Saving describes the costs borne by banks as bank-specific variables, the price of loans and the cost of funds is an important measure for balancing the interest income (Anjom, 2021), the public and government debt is seen as an indicator of default risk rather than operating to issue other sources of borrowing (Bosworth, 2016), and affects the costs borne by companies and the government, thet imply to influence interest rates policy (Sundarajan, 1985).…”

Section: Introductionmentioning

confidence: 99%

The Monetary and Macroeconomic Conditions on Interest Rate Spread: Empirical evidence from Indonesia

Rachman

2023

jejak

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This study examines the Interest Rate Spread (IRS) in Indonesia which is influenced by monetary instrument variables, macroeconomic conditions, and event structural changes (Asian Crisis, Global Financial Crisis, COVID-19 and Election year). The analytical method used is the Autoregressive Distributed Lag (ARDL) Model with data observations from 1990 - 2021. The purpose of this study is to determine the strength of the IRS on economic conditions in Indonesia. The results of the analysis show that in the long run, M2, total credit and inflation have a negative effect on the IRS variable, while the household consumption variable has a positive effect. The policy implications need to be applied in efforts to control the IRS are related to monetary policy.

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Mapping Capital Ratios to Bank Lending Spreads: The Role of Efficiency and Asymmetry in Performance Indices

Golbabaei Pasandi,

Botshekan,

Jalilvand

et al. 2024

JRFM

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Beyond the 2007–2008 financial crisis, the collapse of the Silicon Valley Bank and the acquisition of Credit Suisse by the Swiss investment bank UBS Group AG in 2023 have brought fresh attention to the need for new regulatory capital, liquidity risk management, and leverage requirements. To meet tightened capital requirements, banks have to increase their capital ratios either by increasing equity or by decreasing risk-weighted assets. Both options lead to banks’ performance deterioration. One remedy for banks to recover is raising their lending spread. A critical question is how much the lending spread should be increased to offset the drop in the bank’s financial performance level. In this study, we focus on the asymmetries and efficiency consequences of performance indices such as economic value added (EVA) and the more commonly used return on equity (ROE) in determining the loan spread. Using data on the largest U.S. banks over the period 2018–2022, our results show that the ROE rule significantly overestimates the magnitude of the lending spreads required to offset the negative financial consequences of increases in capital ratios. The EVA approach, on the other hand, prescribes on average a significantly lower lending spread of 0.4505 basis points against a lending spread of 21.0441 basis points associated with the use of the ROE approach. The efficiency and the level of lending spreads should enable banks to maintain their competitive advantages in the loan markets impacting overall economic productivity and growth.

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The capital ratio and the interest rate spread: A panel threshold regression approach

Cited by 3 publications

References 27 publications

Moderation of Interest Rate Policy Towards Banking Profitability

Moderation of Interest Rate Policy Towards Banking Profitability

The Monetary and Macroeconomic Conditions on Interest Rate Spread: Empirical evidence from Indonesia

Mapping Capital Ratios to Bank Lending Spreads: The Role of Efficiency and Asymmetry in Performance Indices

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