Determinants of Belgian bank lending intrest rates
AbstractThis article first reviews the main determinants of bank loans’ interest rates and offers a brief discussion of the impact of capital requirements on interest rate margins. Next, it presents some empirical evidence, first, on the pass-through of the central bank rate to market rates and, subsequently, on the pass-through of market rates to retail interest rates using survey data for Belgian credit institutions. As predicted by economic theory, the size and significance of the pass-through of monetary policy impulses to market rates falls quickly with maturity. However, the long run pass-through remains almost complete for maturities lower or equal to one year. Belgian banks seem to adjust more quickly and more fully their retail interest rates on credit to enterprises than those on credit to households. With the exception of consumer loans, the long-term pass-through proves to be above 80 percent. Finally, this article goes into the first results of the new interest rates survey. Banks with a relatively high degree of capital coverage are found to ask higher lending rates and are probably granting riskier loans. Liquid banks and large banks generally set lower lending rates. Belgian firms and households are facing lending conditions broadly similar to those prevailing in the euro area.
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Bibliographic InfoArticle provided by National Bank of Belgium in its journal Economic Review.
Volume (Year): (2004)
Issue (Month): III (September)
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Pass-through; Banks; Determinants of lending interest rates;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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- V. Périlleux & Q. Wibaut, 2004. "The transmission of monetary policy impulses in Belgium," Economic Review, National Bank of Belgium, issue II, pages 37-45, June.
- Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, International Monetary Fund.
- Weth, Mark A., 2002. "The pass-through from market interest rates to bank lending rates in Germany," Discussion Paper Series 1: Economic Studies 2002,11, Deutsche Bundesbank, Research Centre.
- Ferre De Graeve & Olivier De Jonghe & Rudi Vander Vennet, 2004. "The Determinants of Pass-Through of Market Conditions to Bank Retail Interest Rates in Belgium," Working Paper Research 47, National Bank of Belgium.
- Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
- de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
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