Research ArticleOpen AccessGoogle Scholar indexed
The Determinants of Interest Rate Spreads in Nigeria: An Empirical Investigation
Department of Economis, Obafemi Awolowo University, Ile-Ife, Nigeria
Department of Economis, Obafemi Awolowo University, Ile-Ife, Nigeria
- 1 Department of Economis, Obafemi Awolowo University, Ile-Ife, Nigeria
- 2 Department of Economis, Obafemi Awolowo University, Ile-Ife, Nigeria
Copy link · social · email
Abstract
The paper examines the determinants of interest rate spreads in Nigeria using a panel of 12 commercial banks for the period 1986-2007. The results suggest that cash reserve requirements, average loans to average total deposits, remuneration to total assets and gross domestic product have positive effect on interest rate spreads. However, non-interest income to average total assets, treasury certificate and development stocks have negative relationship with interest rate spreads. In general, the findings that suggest a reduction in cash reserve ratio, high bank overhead costs amongst others will help to moderate the high interest rate spreads in Nigeria.
KeywordsInterest Rate SpreadDeterminantsNigeria
- G. Quaden, “Efficiency and Stability in an Evolving Financial System,” 2004. www.bub.be/Sg/En/Contact/pdf/2004/spo40517an.pdf
- S. C.Valverde, R. L. del Pasto and F. R. Fernandez, “Banks, Financial Innovations and RegionalGrowth,” 2004. www.ugr.es/~franrod/ingrowth04.pdf
- N. S. Ndung’u and R. W. Ngugi, “Banking Sector Interest Rate Spreads in Kenya,” Kenya Institute for Public Policy Research and Analysis (KIPPRA), Discussion Paper No. 5, 2000.
- E. A. Onwioduokit and P. Adamu, “Financial Liberalization in Nigeria: An Assessment of Relative Impact,” In: Nigerian Economic Society, Benefits and Costs of Economic Reforms in Nigeria. Selected Papers for the 2005 Annual Conference of Nigerian Economic Society, 2005.
- C. I. Enendu, “Determinants of Commercial bank Interest Rate Spreads in a Liberalized Financial System: Empirical Evidence form Nigeria 1989-2000,” Economic and Financial Review, Vol. 41, No 1, 2003.
- L. Angbazo, “Commercial bank Net Interest Margins, Default Risk, Interest-Rate Risk, and Off-Balance Sheet Banking,” Journal of banking and Finance, Vol. 21, No. 1, 1997, pp. 55- 87. doi:10.1016/S0378-4266(96)00025-8
- A. Saunders and L. Schumacher, “The determinants of Bank Interest rate Margins: An International Study,” Journal of International Money and Finance, Vol. 19, No. 6, pp. 813-832. doi:10.1016/S0261-5606(00)00033-4
- R. Randall, “Interest Rate Spreads in the Eastern Caribbean,” IMF Working Paper, WP/98/59.
- L. Catao, “Intermediation Spreads in a Dual currency Economy: Argentina in 1990s,” IMF Working Paper, WP/ 98/90.
- K.P. Wong, “On the Determinants of Bank Interest Margins under Credit and Interest Rate Risks,” Journal of Banking and Finance, Vol. 21, No.2, 1997, pp. 251-271. doi:10.1016/S0378-4266(96)00037-4
- A. Barajas, R. Steiner and N. Salazar, “Interest Spreads in Banking in Colombia, 1975-96,” Journal of Development Economics, Vol. 88, pp. 192-2004.
- P. L. Brock and L. Rojas-Suarez, “Understanding the Behaviour of Bank Spreads in Latin America,” Journal of Development Economics, Vol. 63, 2000, pp. 113-135. doi:10.1016/S0304-3878(00)00102-4
- T. A. Beck and H. Hesse, “Bank Efficiency, Ownership and Market Structure: Why Are Interest Spreads So High in Uganda?” World Bank Policy Research Working Paper 4027, 2006.
- H. Hesse, “Financial Intermediation in the Pre-consolidated Banking Sector in Nigeria,” World Bank Policy Research Working Paper 4267, 2007.