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Financial Reforms and Persistently High Bank Interest Spreads in Bangladesh: Pitfalls in Institutional Development?

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  • Hossain, Monzur

Abstract

This paper analyzes interest rate spreads and margins in banking in Bangladesh for the period 1990-2008. The application of the Arellano-Bover/Blundell-Bond dynamic panel regression model to a panel of 43 banks for the period 1990-2008 reveals persistency in interest spreads and margins. The model also identifies that high administrative costs, high non-performing loan ratio and some macroeconomic factors are the key determinants of persistently high interest rate spreads and margins. Persistently high spreads and margins in old private banks (established before 1999) are attributed to a certain degree of market power in the post-liberalization period (after 1999). These factors together imply a lack of competition and efficiency in the banking sector of Bangladesh despite financial reforms.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24755.

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Date of creation: Feb 2010
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Handle: RePEc:pra:mprapa:24755

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Keywords: Interest rate spread and margin; Bank efficiency; Competitiveness; Bangladesh;

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Cited by:
  1. Jugnu Ansari & Ashima Goyal, 2014. "Banks competition, managerial efficiency and the interest rate pass-through in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-007, Indira Gandhi Institute of Development Research, Mumbai, India.

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