The paper aims to explain bank interest spread from 2000 to 2014.
Abstract
Purpose
The paper aims to explain bank interest spread from 2000 to 2014.
Design/methodology/approach
The study used the ordinary least square panel corrected standard errors (OLS-PCSE) estimation. Generalised least squares results (unreported but available on request) are consistent with the OLS-PCSE results. This is done for 110 developing countries, 50 Europe & Central Asia countries, 33 Latin American countries, 21 Middle East and North African (MENA) countries, 46 Sub-Saharan African (SSA) counties and 8 South Asia countries. The developing countries are further grouped into small, medium and large-size banking markets.
Findings
The study finds consistent results which indicate that the bigger a bank the less margin charged. The results further show an ambiguous relationship between concentration and net interest margin. The authors find strong evidence to show that less competition leads to inefficient banking market. The study finds lower operational efficiency can lead to higher or lower margin depending on the region or market size. General growth in the economy can lead to a more efficient banking market. The results allude to the fact that inflationary shocks do pass on to deposit and loan rates at different extent and speed. Little evidence show that higher presence of foreign banks leads to higher margins.
Practical implications
The study recommends Central banks to encourage banks to grow/expand either through mergers or acquisitions. This could be done by increasing minimum capital requirements. When this is done, it is most likely that economies of scale among the merged banking entities will be materialised, potentially causing a sizable reduction in overhead costs that could eventually also increase the intermediation efficiency. While at this, further efficiency should be ensured through stirring up competition.
Originality/value
This study is the first to give new evidence of banking spread using country level data for developing countries and across different continents.
Details
Keywords
Richard Adjei Dwumfour, Elikplimi Komla Agbloyor and Joshua Yindenaba Abor
The purpose of this paper is to examine how remittances, financial development (FD), and natural resources and their different transmission channels can be used to reduce poverty…
Abstract
Purpose
The purpose of this paper is to examine how remittances, financial development (FD), and natural resources and their different transmission channels can be used to reduce poverty in Africa.
Design/methodology/approach
Using the Human Development Index (HDI) as the measure of welfare, the authors specify these relationships using the System GMM estimator approach.
Findings
The authors hypothesise that for remittance to effectively improve welfare, the recipient of remittances must have access to credit to profitably utilise the monies. Again, the authors assert that FD can be effective in improving welfare when development of the sector actually benefits the poor. The authors provide empirical support for these hypotheses using 54 African countries covering the period 1990-2012. The findings also show that the North African region has been able to utilise its oil rents in particular to improve welfare unlike the Sub-Saharan counterpart.
Originality/value
This paper is the first to jointly estimate the impact of remittances, FD, and natural resources on welfare using a comprehensive measure of poverty – HDI.