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Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001

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  • Philip Brock
  • Helmut Franken M.

Abstract

The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a dataset that allows us to directly compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the relevant organization. The information is disaggregated by unit of account (peso,the inflation-indexed UF, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some aution in interpreting estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, it shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type is capable of drawing by itself. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries.

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  • Philip Brock & Helmut Franken M., 2003. "Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(3), pages 45-65, December.
  • Handle: RePEc:chb:bcchec:v:6:y:2003:i:3:p:45-65
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    2. Nguyen Duy Suu & Thu-Quang Luu & Kim-Hung Pho & Michael McAleer, 2020. "Net Interest Marginof Commercial Banks in Vietnam," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(1), pages 1-27, March.
    3. Were, Maureen & Wambua, Joseph, 2013. "Assessing the determinants of interest rate spread of commercial banks in Kenya: An empirical investigation," KBA Centre for Research on Financial Markets and Policy Working Paper Series 4, Kenya Bankers Association (KBA).
    4. Mathur, Ike & Marcelin, Isaac, 2015. "Institutional failure or market failure?," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 266-280.
    5. Papavangjeli, Meri & Leka, Eralda, 2016. "Përcaktuesit mikro- dhe makroekonomikë të marzhit neto të interesave në sistemin bankar shqiptar (2002-2014) [Micro- and macroeconomic determinants of net interest margin in the Albanian banking sy," MPRA Paper 78604, University Library of Munich, Germany, revised Jun 2016.
    6. International Monetary Fund, 2013. "Peru: Selected Issues Paper," IMF Staff Country Reports 2013/046, International Monetary Fund.
    7. Fidane Spahija, 2016. "The Investment and Net Interest Margin: Case Study Commercial Banks in Kosovo," European Journal of Multidisciplinary Studies Articles, Revistia Research and Publishing, vol. 1, January -.
    8. Horváth, Roman & Podpiera, Anca, 2012. "Heterogeneity in bank pricing policies: The Czech evidence," Economic Systems, Elsevier, vol. 36(1), pages 87-108.
    9. Serhat Yuksel & Sinemis Zengin, 2017. "Influencing Factors of Net Interest Margin in Turkish Banking Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 178-191.
    10. Navarro, Lucas, 2009. "Employment dynamics and crises in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    11. Mimouni, Karim & Smaoui, Houcem & Temimi, Akram & Al-Azzam, Moh'd, 2019. "The impact of Sukuk on the performance of conventional and Islamic banks," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 42-54.
    12. Vera-Gilces, Paul & Camino-Mogro, Segundo & Ordeñana-Rodríguez, Xavier & Cornejo-Marcos, Gino, 2020. "A look inside banking profitability: Evidence from a dollarized emerging country," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 147-166.
    13. Sokol Ndoka & Anilda Bozdo, 2015. "Analysis of Interest Rate Impact on the Profitability Level of the Banking System in Albania during the Period 2005 -2014," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 1, September.
    14. Papadopoulos, Georgios, 2020. "Probing the mechanism: lending rate setting in a data-driven agent-based model," MPRA Paper 102749, University Library of Munich, Germany.
    15. 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, vol. 19(6), pages 489-507.
    16. Koffie Ben Nassar & Edder Martinez & Anabel Pineda, 2014. "Determinants of Banks' Net Interest Margins in Honduras," IMF Working Papers 2014/163, International Monetary Fund.
    17. Saona, Paolo, 2016. "Intra- and extra-bank determinants of Latin American Banks' profitability," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 197-214.
    18. repec:dau:papers:123456789/3369 is not listed on IDEAS
    19. Hainz, Christa & Horváth, Roman & Hlaváček, Michal, 2014. "The interest rate spreads in the Czech Republic: Different loans, different determinants?," Economic Systems, Elsevier, vol. 38(1), pages 43-54.
    20. Chortareas, Georgios E. & Garza-García, Jesús G. & Girardone, Claudia, 2012. "Competition, efficiency and interest rate margins in Latin American banking," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 93-103.

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