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Determinants of Credit Growth and Interest Margins in the Philippines and Asia

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  • Tatum Blaise Pua Tan
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    Abstract

    Despite robust deposit growth, credit growth has been sluggish in the Philippines. We attribute this to legacy weaknesses in bank balance sheets, consumption-led economic growth, and relatively high net interest margins. Bank-level analysis suggests that interest margins in the Philippines rise with bank size, bank capitalization, foreign ownership, overhead costs and tax rates. Using bank-level data for a number of Asian economies, we find that higher growth, lower inflation, higher reserve requirements, greater banking sector development, smaller stock market development and lower government deficits reduce net interest margins, informing the policy debate on strengthening financial intermediation in the Philippines.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/123.

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    Length: 25
    Date of creation: 01 May 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/123

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    Related research

    Keywords: Asia; Banking sector; Credit demand; Credit expansion; Interest rates; banking; financial system; bank size; banking system; stock market; banking industry; bank credit; bank capitalization; financial sector; financial intermediation; stock market development; reserve requirement; deposit growth; deposit rates; banking sector development; bank spreads; bank branches; monetary authority; bank interest; financial sector development; financial systems; international financial statistics; bank interest margins; capital adequacy; international reserves; bank of thailand; bank margins; bank soundness; net interest margin; bank profitability; deposit rate; deposit insurance; bank lending; bank entry; financial structure; reserve requirements; macroeconomic stability; financial economics; bank spread; bank deposits; bank branch; financial markets; bank act; bank regulations; electronic banking; financial institutions; economic condition; bank interest rate; banking community; development authority; discount rates; bankrupt; foreign asset; domestic liquidity; bank balance sheets; stock market capitalization; stock markets; bank for international settlements; bank default; stock market liquidity; excess liquidity; bank deposit rates; bank officer; measure of profitability; automated teller; return on equity; bank deposit; financial market; banking supervision; bank policy; financial liberalization; return on assets; nominal interest rate; bank ownership; foreign exchange market;

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    1. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, Elsevier, vol. 32(2), pages 197-216, June.
    2. Raphael A. Espinoza & Ananthakrishnan Prasad, 2010. "Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects," IMF Working Papers 10/224, International Monetary Fund.
    3. M. Idrees Khawaja & Musleh-Ud Din, 2007. "Determinants of Interest Spread in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 46(2), pages 129-143.
    4. David Tennant & Abiodun Folawewo, 2009. "Macroeconomic and market determinants of interest rate spreads in low- and middle-income countries," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(6), pages 489-507.
    5. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 379-408, May.
    6. Kaiguo Zhou & Michael C. S. Wong, 2008. "The Determinants of Net Interest Margins of Commercial Banks in Mainland China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 44(5), pages 41-53, September.
    7. Guilherme Jonas Costa da Silva & José Luís Oreiro & Luiz Fernando de Paula & Rogério Sobreira, 2007. "Macroeconomic Determinants Of Banking Spread In Brazil: An Empirical Evaluation," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gr 098, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    8. Guilherme Jonas Costa da Silva & José Luís Oreiro & Luiz Fernando de Paula, 2007. "Macroeconomic Determinants of Bank Spread in Brazil: An Empirical Evaluation," Working Papers, Universidade Federal do Paraná, Department of Economics 0066, Universidade Federal do Paraná, Department of Economics.
    9. M S Mohanty & Gert Schnabel & Pablo Garcia-Luna, 2006. "Banks and aggregate credit: what is new?," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 11-39 Bank for International Settlements.
    10. May Y. Khamis & Plamen Iossifov, 2009. "Credit Growth in Sub-Saharan Africa," IMF Working Papers 09/180, International Monetary Fund.
    11. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
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