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Determinants of the banking spread in the Brazilian economy: The role of micro and macroeconomic factors

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  • Almeida, Fernanda Dantas
  • Divino, José Angelo

Abstract

The objective of this paper is to identify the major determinants of the ex-post banking spread in the Brazilian economy, considering the influence of the macroeconomic environment, specific characteristics of the financial institutions, and elements from the banking sector. The empirical model is based on the pioneer work by Ho and Saunders (1981) and some of its extensions in the literature. The sample consists of a balanced panel, composed of 64 banks in the period between the first quarter of 2001 and the second quarter of 2012. The results of the static model suggest that administrative expenses, revenue from services and coverage index are important determinants of the ex-post spread. The macroeconomic environment showed positive effects arising from real GDP while the Herfindahl–Hirschaman index indicated that spreads are higher for a more concentrated banking system. The dynamic model revealed a moderate persistence of the ex-post banking spread and a relevant role for the banks' market-share. The overall pure spread indicates that banks consider the Brazilian economy a risky environment to operate.

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  • Almeida, Fernanda Dantas & Divino, José Angelo, 2015. "Determinants of the banking spread in the Brazilian economy: The role of micro and macroeconomic factors," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 29-39.
    • Handle: RePEc:eee:reveco:v:40:y:2015:i:c:p:29-39
    DOI: 10.1016/j.iref.2015.02.003
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    2. Hammoudeh, Shawkat & McAleer, Michael, 2015. "Advances in financial risk management and economic policy uncertainty: An overview," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 1-7.
    3. Thiago Trafane Oliveira Santos, 2021. "High Lending Interest Rates in Brazil: cost or concentration?," Working Papers Series 550, Central Bank of Brazil, Research Department.
    4. 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.
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    7. Özcan IŞIK & Murat BELKE, 2017. "An Empirical Analysis of the Determinants of Net Interest Margins of Turkish Listed Banks: Panel Data Evidence from Post-Crisis Era," Sosyoekonomi Journal, Sosyoekonomi Society, issue 25(34).
    8. 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.
    9. Anastasiou, Dimitrios, 2017. "Macroeconomic Determinants of MIR Rate: Evidence from the Euro area," MPRA Paper 80972, University Library of Munich, Germany.

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    More about this item

    Keywords

    Banking spread; Financial sector; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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