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Bank efficiency, ownership and market structure : Why are interest spreads so high in Uganda?

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  • Beck, T.H.L.

    (Tilburg University, School of Economics and Management)

  • Hesse, H.

Abstract

Using a unique bank-level dataset on the Ugandan banking system over the period 1999 to 2005, we explore the factors behind consistently high interest rate spreads and margins. While foreign banks charge lower interest rate spreads, we do not find a robust and economically significant relationship between privatization, foreign bank entry, market structure and banking efficiency. Similarly, macroeconomic variables can explain little of the over-time variation in bank spreads. Bank-level characteristics, on the other hand, such as bank size, operating costs, and composition of loan portfolio, explain a large proportion of cross-bank, cross-time variation in spreads and margins. However, time-invariant bank-level fixed effects explain the largest part of bank-variation in spreads and margins. Further, we find tentative evidence that banks targeting the low-end of the market incur higher costs and therefore higher margins.
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  • Beck, T.H.L. & Hesse, H., 2006. "Bank efficiency, ownership and market structure : Why are interest spreads so high in Uganda?," Other publications TiSEM 7c680c2f-c772-409d-8346-e, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:7c680c2f-c772-409d-8346-ef6cd56ae1f7
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    2. Asongu, Simplice & Batuo, Enowbi & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2018. "Is information diffusion a threat to market power for financial access? Insights from the African banking industry," Journal of Multinational Financial Management, Elsevier, vol. 45(C), pages 88-104.
    3. Dilli Raj Khanal, 2007. "Services Trade in Developing Asia:A Case Study of the Banking and Insurance Sector in Nepal," Working Papers 3907, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Size, efficiency, market power, and economies of scale in the African banking sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-22, December.
    5. Simplice A. Asongu & Sara Le Roux & Vanessa S. Tchamyou, 2019. "Essential information sharing thresholds for reducing market power in financial access: a study of the African banking industry," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(1), pages 34-50, March.
    6. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Testing the Quiet Life Hypothesis in the African Banking Industry," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 69-82, March.
    7. Florin Aliu & Orkhan Nadirov, 2016. "Kosovo Banking Paradox," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(4), pages 11-22, December.
    8. Asongu, Simplice A. & Biekpe, Nicholas, 2018. "ICT, information asymmetry and market power in African banking industry," Research in International Business and Finance, Elsevier, vol. 44(C), pages 518-531.
    9. Salahuddin Ahmad & Dilli Raj Khanal, 2007. "Services Trade in Developing Asia: A case study of the Banking and Insurance Sector in Bangladesh," ARTNeT Working Papers 38, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    10. Hesse, Heiko, 2007. "Financial intermediation in the pre-consolidated banking sector in Nigeria," Policy Research Working Paper Series 4267, The World Bank.
    11. Samar Jameel Kalyal & Dawood Ashraf & Asfia Obaid, 2019. "The Role of Stability and Ownership Structure in Determining the Efficiency of US Bank Holding Companies," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 11(2), pages 19-44, June.
    12. Simplice Asongu & Rexon Nting & Joseph Nnanna, 2020. "Market power and cost efficiency in the African banking industry," Journal of Economic Studies, Emerald Group Publishing, vol. 47(6), pages 1247-1264, May.
    13. Chuling Chen, 2009. "Bank Efficiency in Sub-Saharan African Middle Income Countries," IMF Working Papers 2009/014, International Monetary Fund.
    14. Salahuddin Ahmad & Dilli Raj Khanal, 2007. "Services Trade in Developing Asia: A Case Study of the Banking and Insurance Sector in Bangladesh," Working Papers 3807, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    15. 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.
    16. Govori, Fadil, 2013. "The performance of commercial banks and the determinants of profitability: Evidence from Kosovo," MPRA Paper 46824, University Library of Munich, Germany.
    17. Clarke, George R.G. & Cull, Robert & Fuchs, Michael, 2009. "Bank Privatization in Sub-Saharan Africa: The Case of Uganda Commercial Bank," World Development, Elsevier, vol. 37(9), pages 1506-1521, September.
    18. Dilli Raj Khanal, 2007. "Services Trade in Developing Asia: A Case Study of the Banking and Insurance Sector in Nepal," ARTNeT Working Papers 39, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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