Interest Rate Spreads in an Emerging Economy

The Case of Pakistan’s Commercial Banking Sector

Bibliographic Data

ID15066385
AuthorsAyesha Afzal (0000-0002-8632-3681, Lahore School of Economics), Nazrat Mirza (0000-0003-4265-9519, Lahore School of Economics), Nawazish Mirza
Year2012
Volume25
Issue4
Pages987-1004
Publication date2012-01-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueEconomic Research-Ekonomska Istraživanja (JOURNAL)
Journal identifiersISSN: 1331-677X • E-ISSN: 1848-9664
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1080/1331677x.2012.11517543
OpenAlexW1525518085
LanguageEN
Citations received5

This paper explores the determinants of interest rate spreads in Pakistan’s commercialbanking sector in post transition period (2004 – 2009) using an exhaustive set of macro andfirm level variables to analyze their impact on intermediary efficiency. We introduce twoinnovative variables of default likelihood indicator (Black Merton and Scholes option pricing framework) and proportion of public sector deposits in total deposits to explain thevariation in spreads.The results suggest that intermediary efficiency is affected by bank size, operationalefficiency, asset quality, liquidity, risk absorption capacity and GOP growth rate. Thereis evidence for deposit market share as well as deposit market concentrationestablishing the presence of an interest sensitive deposit market. We could not find support for impact of interest rate volatility and financial development indicator on banking spreads

Business · Economics · Financial economics · Financial system · Fixed deposit · Interest rate · Macro · Market liquidity · Monetary economics · Banking stability, regulation, efficiency · Credit Risk and Financial Regulations · Islamic Finance and Banking Studies

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