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Consumer loan rate dispersion and the role of competition: Evidence from Turkish banking industry

Author

Listed:
  • Selva Bahar Baziki
  • Yavuz Kiliç
  • Muhammed Hasan Yilmaz

Abstract

This paper investigates the degree of dispersion in the loan pricing of commercial banks and its association with competitive conditions in the banking industry of a large emerging economy. To quantify the lending rate variability in consumer loans, we utilize a new indexation mechanism exploiting a detailed bank-level dataset for the period January 2007–April 2020. With panel convergence methods, we show the existence of heterogeneity in long-term co-movements among banks' loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies as demonstrated by dispersion indices. Our empirical design also entails the construction of competition indicators for aggregated and consumer segment-based credit market developments. Quantile regression results validate that the improvements in industry competition are related to the lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas an opposite relationship is evident for general-purpose loans.

Suggested Citation

  • Selva Bahar Baziki & Yavuz Kiliç & Muhammed Hasan Yilmaz, 2022. "Consumer loan rate dispersion and the role of competition: Evidence from Turkish banking industry," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 22(1), pages 27-47.
    • Handle: RePEc:tcb:cebare:v:22:y:2022:i:1:p:27-47
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