Interest Rate Spread in Commercial Banking Sector of Sri Lanka

2006 ◽  
Author(s):  
W.N.P. Surawimala
Keyword(s):  
Interest Rate ◽  
Sri Lanka ◽  
Banking Sector ◽  
Commercial Banking ◽  
Interest Rate Spread

scholarly journals Banking sector competitiveness

2021 ◽  
Vol 10 (2) ◽  
pp. 195-202
Author(s):  
Champika Liyanagamage
Keyword(s):  
Sri Lanka ◽  
Business Models ◽  
Banking Sector ◽  
Positive Impact ◽  
Balance Sheet ◽  
Estimation Procedure ◽  
Commercial Banking ◽  
Sri Lankan ◽  
Level Data ◽  
Banking Institutions

Despite core banking, banks also engage in off-balance-sheet (OBS) market activities. In many developed banking industries, OBS activities have grown to be significant during the last two decades. This paper provides rather scarce evidence on the competitiveness among banks for OBS activities and its impact on the degree of banking sector competition in Sri Lanka. Panzar-Ross H statistic approach employing in this study to estimate bank competition used a comprehensive set of bank-level data of the whole commercial banking sector in Sri Lanka covering the period 1996-2018. The first-round analysis of the study uncovers substantial differences among banks concerning the OBS activities. EGLS panel estimation procedure applied in this study provides evidence for a lower level of competitiveness among Sri Lankan banks for OBS activities. More interestingly, the findings further reveal that the degree of competitiveness for OBS activities has a significant positive impact on the overall competitiveness of the banking sector in Sri Lanka.  These results suggest banking institutions re-visit their business models with greater emphasis on nonconventional banking activities in enhancing bank-level efficiency and hence positively contributing to the overall competitiveness of the banking sector.

scholarly journals THE DETERMINANTS OF INTEREST RATE SPREAD AMONG COMMERCIAL BANKS IN KENYA

2017 ◽  
Vol 2 (5) ◽  
pp. 29
Author(s):  
Leah Njoroge ◽  
Mercy Warui ◽  
Catherine Mbogo ◽  
Margaret Chiera ◽  
Dr. Chogii
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Market Structure ◽  
Significant Relationship ◽  
Commercial Banks ◽  
Banking Sector ◽  
Unique Contribution ◽  
High Interest Rate ◽  
Interest Rate Spread ◽  
The Interest Rate

Purpose: To establish the determinants of interest rate spread among commercial banks in Kenya. Methodology: The study utilized a descriptive survey research design. Findings: The results indicated that the commercial banking sector has witnessed a gradual rise in the Interest rate spread. Results also showed that the mean of market structure has been fluctuating with year (2010) being the lowest with mean of 4 and year (2012) being the highest with mean 12. Results also showed that there was no regulation from the year (2005) to the year (2009) but it was later adopted whereas regulations shoot steadily to mean of 1.0 in the year (2009) and remained in the same level the rest of the years. The regression results indicate that there is a positive and significant relationship between market structure, credit risk and interest spread. The regression results also indicated that there is a positive but insignificant relationship between access to information and interest spread. Further, the results indicated that there is a negative and significant relationship between regulation and interest spread. Unique contribution to theory, practice and policy: The study is important to the management of Commercial banks as it will provide an insight on the factors influencing interest rate spread among commercial banks in Kenya. The results of this study will provide information to policy makers and other stakeholders in the financial sector (especially the banks) to come up with strategies that help in dealing with the high interest rate spread experience in the banking sector and thus improve on the financial performance of the organisations. It may be used as a tool for persuading commercial banks to reduce their interest rates spread and hence increase their volume of business, which of course would compensate the loss in the interest rate spread. The study will also be invaluable to the government and CBK. This is because the monetary policy framework of Central Bank of Kenya and its implementation will be guided by a need to ensure, among others: realistic interest rate spreads that encourage financial deepening and a safe, sound, efficient and competitive banking system through discreet risk management. These findings therefore might influence the effectiveness of economic policies. The research results will also be important to scholars and researchers as it will add to the existing pool of knowledge.

scholarly journals A modelling process of short-term interest rate risk management for the South African commercial banking sector

2011 ◽  
Vol 9 (1) ◽  
pp. 628-637
Author(s):  
Jiaqi Sun ◽  
J.H. Van Rooyen
Keyword(s):  
Interest Rate ◽  
South African ◽  
Inflation Targeting ◽  
Banking Sector ◽  
Empirical Finding ◽  
Interest Rate Risk ◽  
Commercial Banking ◽  
The South ◽  
Short Term ◽  
Rate Risk

This study focuses on banking book interest rate risk (IRR) management, more specifically short-term IRR management (SIRR). This type of risk is partly induced by the inflation targeting policy of the South African Reserve Bank (SARB). As a result, inflation leads to an uncertain interest rate cycle and a period of uncertain interest rate levels as it relates to lending and borrowing activities in the South African commercial banking sector. This study highlights what causes short-term interest rate risk and how the banks may forecast and manage the SIRR with reference to the inflation targeting policy. The banking industry manages a high volume of fund transactions and portfolios of investments. The banks are intricately involved in the financial markets and are therefore exposed to a large number of risk factors. A sound banking system is an important prerequisite for a country’s future economic development. One key empirical finding of this research is that 50 per cent of the South African banks agree that loans that cannot undergo immediate rate adjustments are exposed to the repo-rate adjustment after the Monetary Policy Committee (MPC) meeting. Banks surveyed see the need for the development of a short-term interest rate risk (SIRR) management process to better control such repo-rate risk. The next key empirical finding is that interest rate risk is still managed via traditional repricing gap and sensitivity analysis which is not ideal for risk management due to inherent weaknesses (such as not quantifying capital risk exposure). This agrees with the Pricewaterhousecoopers Balance Sheet Management benchmark survey

scholarly journals Determinants of Financial Sustainability of Financial Intermediaries

2021 ◽  
Vol 10 (1) ◽  
pp. 01-10
Author(s):  
Champika Liyanagamage
Keyword(s):  
Sri Lanka ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking System ◽  
Business Environment ◽  
Commercial Banking ◽  
Institutional Setting ◽  
Bank Stability ◽  
Credit Growth ◽  
Economic Implications

This paper provides interesting insights into the practices of banks and institutional setting in Sri Lanka. The sustainability and stability of banks that makes up an economy’s banking system should be sound at all time. This paper aimed at analyzing the determinants of banking sector stability in Sri Lanka. The study used a broad set of macro and bank level data covering 22 commercial banks for the period 1996-2016. The fixed effect GLS panel data model tested in this paper sets the relationship between bank stability measure; Z-score and business environment which includes bank characteristics and the elements of macro environment. The analysis of the study revealed lower level of Z-scores and thus lower level of bank stability, indicating a higher risk associated with the commercial banking sector in Sri Lanka.  From among the variables tested, strong evidence was found for a positive effect of bank efficiency on bank stability and a negative effect of credit growth on bank stability. At macro level, bank stability is promoted at a higher rate when the economy is more developed and stable. The results imply that efficiency of commercial banks needs to be further improved and regulatory and policy environment should be strengthened to manage the credit growth at the bank level. Further, it is suggestive to strengthening bank supervision and other financial infrastructure in order to ensure sustainability of the banking sector. Thus, the present paper contributes the current banking literature by unveiling the explicit and unforeseen economic implications associate with individual bank operations and macro imbalance which are particularly unique in underdeveloped countries.

scholarly journals EFFECT ANALYSIS OF BANKING SECTOR REFORM AND GROSS MANUFACTURING OUTPUT IN NIGERIA: IMPLICATIONS FOR ACHIEVING SUSTAINABLE DEVELOPMENT GOAL 9

2021 ◽  
Vol 8 (1) ◽  
pp. 117-147
Author(s):  
Dike Okechukwu ◽  
◽  
Nwogwugu Uche ◽  
Kalu Chris ◽  
Eze Eze ◽  
...  
Keyword(s):  
Sustainable Development ◽  
Exchange Rate ◽  
Interest Rate ◽  
Banking Sector ◽  
Nominal Exchange Rate ◽  
Bank Credit ◽  
Sustainable Development Goal ◽  
Sector Reform ◽  
Development Goal ◽  
Interest Rate Spread

No doubt, structural transformation lies at the heart of economic progress of any nation. Most significantly, the industrial sector, especially manufacturing, is a key engine of growth and development. Unfortunately, manufacturing development in Nigeria, over the years have not improved despite the banking sector reforms. This paper empirically investigated the shock effects of the banking sector reform on gross manufacturing output in Nigeria between the period 1970-2018. The variables used in the paper include gross manufacturing output, bank credit to the manufacturing sector, interest rate spread, nominal exchange rate, market capitalization, manufacturing capacity utilization and a dummy variable. The data were sourced from the Central Bank of Nigeria Statistical Bulletin, International Monetary Fund Financial Reports and the World Bank Development Indicator (2019). The Vector Autoregressive Model (VAR) estimation techniques were employed to achieve the objective of the paper. The results showed that gross manufacturing output responded negatively to bank credit during all the reforms phases. It further revealed that it responded negatively to a unit shock in exchange rate during the pre-SAP and bank recapitalization periods, but positively during the deregulation, regulation and liberalization periods. It showed also that gross manufacturing output responded negatively to shock in interest rate spread during all reform phases in Nigeria. The policy implication of these findings attested to the fact that the linkage between the banking sector and real sector is weak in Nigeria. Hence for Sustainable Development Goal 9, in particular 9.2, to be achieved, the linkage between both critical sectors must be integrated and strengthened via improving on the banking sector fundamentals and introduction of shock measures from the reform.

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