Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
This paper analyzes the main trends and patterns of nominal lending interest rates and lending-deposit interest rate spreads in emerging markets and developing economies. Using data from 140 emerging markets and developing economies, analysis shows...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/993931599674780457/Bank-Lending-Rates-and-Spreads-in-EMDEs-Evolution-Drivers-and-Policies http://hdl.handle.net/10986/34478 |
| Summary: | This paper analyzes the main trends and
patterns of nominal lending interest rates and
lending-deposit interest rate spreads in emerging markets
and developing economies. Using data from 140 emerging
markets and developing economies, analysis shows that
nominal lending rates and spreads declined between 2003 and
2017, with regional heterogeneity. In addition, it finds
that less economically and financially developed countries
tend to exhibit higher lending rates and spreads. These
higher rates tend to be driven by higher spreads, not
deposit interest rates. Also, illustrative regressions
suggest that relevant correlates of nominal lending rates
include inflation, public debt, and policy interest rate
(macro-fiscal conditions); overhead costs, nonperforming
loans, and non-interest income (banking characteristics);
and credit bureau coverage and time to resolve insolvency
(business environment). Finally, illustrative decompositions
of the level and 10-year change between 2007 and 2017 of
nominal lending rates find relative differences across
regions. On the decline of nominal interest rates in that
decade, rising public debt and nonperforming loans have
pushed rates up, which was counterbalanced by a reduction in
inflation, the policy interest rate, and overhead costs and
a better business environment. Since the global financial
crisis, a common global factor has increased in importance
and has contributed to the downward trend in nominal lending rates. |
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