Determinants of Interest Spread in Pakistan
AbstractInterest spread of the Pakistan’s banking industry has been on the rise for the last two years. The increase in interest spread discourages savings and investments on the one hand, and raises concerns on the effectiveness of bank lending channel of monetary policy on the other. This study examines the determinants of interest spread in Pakistan using panel data of 29 banks. The results show that inelasticity of deposit supply is a major determinant of interest spread whereas industry concentration has no significant influence on interest spread. One reason for inelasticity of deposits supply to the banks is the absence of alternate options for the savers. The on-going merger wave in the banking industry will further limit the options for the savers. Given the adverse implications of banking mergers for a competitive environment, we argue that to maintain a reasonably competitive environment, merger proposals may be subjected to review by an antitrust authority with the central bank retaining the veto over merger approval.
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Bibliographic InfoPaper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2007:22.
Length: 18 pages
Date of creation: 2007
Date of revision:
Banks; Determination of Interest Rates; Mergers; Acquisitions;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-BAN-2007-05-26 (Banking)
- NEP-CBA-2007-05-26 (Central Banking)
- NEP-CFN-2007-05-26 (Corporate Finance)
- NEP-COM-2007-05-26 (Industrial Competition)
- NEP-CWA-2007-05-26 (Central & Western Asia)
- NEP-MAC-2007-05-26 (Macroeconomics)
- NEP-MON-2007-05-26 (Monetary Economics)
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