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

  • Hossain, Monzur

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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  1. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
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  8. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  9. Ruby Randall, 1998. "Interest Rate Spreads in the Eastern Caribbean," IMF Working Papers 98/59, International Monetary Fund.
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  20. Barajas, Adolfo & Steiner, Roberto & Salazar, Natalia, 2000. "The impact of liberalization and foreign investment in Colombia's financial sector," Journal of Development Economics, Elsevier, vol. 63(1), pages 157-196, October.
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  22. Joe Crowley, 2007. "Interest Rate Spreads in English-Speaking African Countries," IMF Working Papers 07/101, International Monetary Fund.
  23. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-44, Winter.
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