Determinants of Lending Interest Rates of Nepalese Commercial Banks

Bhattarai, Yuga Raj

doi:10.3126/ejdi.v19i1-2.17701

Cited by 20 publications

(24 citation statements)

References 10 publications

(13 reference statements)

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“…High interest rate spreads signal banking sector inefficiency and, when that occurs, it hampers not only financial development but also economic growth as credit to productive use is constrained due to high lending rates which are a cost to investors (Nanjunga et al, 2016). Lending interest rate to charge also matters to a commercial bank since profit banks earn-the interest income-makes a significant component of their revenues (Bhattarai, 2015;Nanjunga et al, 2016).…”

Section: Introductionmentioning

confidence: 99%

Determinants of Bank Lending Interest Rates in Tanzania

Mbowe¹,

Mrema²,

Shayo³

2020

AJIBM

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The study seeks to examine the determinants of bank lending interest rates in Tanzania, largely focusing on identifying the key determinants and their relative importance. Techniques employed comprise interest rates decomposition and econometric estimation using banks' annual balance sheet data. Results on interest rates decomposition suggest that, the main drivers of lending rates are operating costs, non-performing loans; and costs of funds (deposits interest rates). The three factors accounted for 70.4 percent of small banks' average lending rates in 2014-17; while for medium and large banks, they constituted about 69.5 percent and 67.4 percent of the lending rates, respectively. Statutory minimum requirement ratio (SMR) appears to play an important role in all banks' lending rates, but its share has been declining overtime consistent with the expansionary monetary policy measures pursued since 2014. With respect to econometric estimations, the findings confirm the role of operating costs, non-performing loans, and cost of funds in explaining bank lending rates dynamics. Operating costs, cost of funds, and inflation have a statistically significant positive effect on bank lending rates, while bank size and level of liquidity have a negative influence. SMR ratio is statistically significant but bears a negative sign except for locally owned banks. In relative importance, the main determinants of bank lending rates could be ranked as follows: inflation with an average positive impact of 0.432 on lending rates for a unit change in inflation, trailed by operating costs (0.261), and cost of funds (0.255). Bank size has the largest negative effect of 0.288 for every unit increase in the variable. The implication of the findings is that effort should be directed at improving operational efficiency aiming at reducing banks operating costs. The key areas of attention are with respect to employees' salaries and benefits, as well as rental and depreciation expenses related to premises and equipment. Banks may consider to take advantage of ICT advancement in the country to cut on costs of "mortal and brick" and employees. Priority could be put on utilizing the growing agent banking framework, and digital How to cite this paper: Mbowe, W. E.,

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Section: Introductionmentioning

confidence: 99%

Determinants of Bank Lending Interest Rates in Tanzania

Mbowe¹,

Mrema²,

Shayo³

2020

AJIBM

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“…In context of Nepal, we came across five main research works viz. Bhattarai 2019, Bajracharya (2018), Puri et al (2018), Timsina (2016a& 2016b and Bhattarai (2016) that have analysed the lending behaviour of commercial banks in Nepal employing quantitative approaches. Those researchers have used a range of explanatory variables to examine the lending behaviour of banks ( Table 1).…”

Section: Methodsmentioning

confidence: 99%

“…There are some recent empirical works analysing the lending behaviour of commercial banks in Nepal though viz. Bhattarai (2019), Bajracharya (2018), Puri et al (2018), Timsina (2016aTimsina ( & 2016b, Bhattarai (2016), etc.but explanation of this observed anomalous behaviour in credit lending has not occupied place into their analyses. Thus, we saw a clear gap in literature in context of Nepal that motivated us to estimate the degree of elasticityof sectoral lending with lending rate (also known as price elasticity) and use the estimated price elasticity to analyse the anomalous relationship observed between them.…”

Section: Introductionmentioning

confidence: 97%

Price Elasticity of Sectoral Lending in Nepal

Chaudhary¹,

Pandit²

2019

NRB Econ. Rev.

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During 2015 to 2019, there was a significant upsurge observed in the lending rate in Nepalese credit market. Interestingly, the lending amount also went up significantly in this period showing an anomalous relationship between lending and lending rate. This paper is an attempt to analyse this observed anomaly. We have estimated and examined the degree of elasticity of sectoral lending with lending rate in Nepalese context undertaking panel regression analysis covering all 28 commercial banks in operation in Nepal till mid-July 2019.The results show a positive and inelastic relationship to exist between sectoral lending and lending rate during the study period despite decreasing Herfindahl-Hirschman index in the same period, which means that level of competition is increasing in Nepalese banking industry. Our scenario analysis indicates syphoning of funds, and the changed role of bankers as major causes for this anomalous relationship.

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“…Several studies have been carried out globally on the bank lending determinants, such as Olokoyo (2011) who identified the volume of deposits, investment portfolio, lending rate, cash reserve requirement ratio, and liquidity ratio as the determinants of lending behavior, Bhattarai (2016) found that bank lending is determined by investment portfolio, bank size, liquidity, and cash reserve ratio, and Timsina (2016) also found that the gross domestic product and liquidity ratio of banks have an impact on bank lending behavior in Nepal but all of them didn't show the direction of impact on banks' lending behavior. Abdul Adzis et al (2018) investigated the determinants of commercial banks' lending and demonstrated that bank size and volume of deposit positively influence commercial bank lending, while liquidity negatively influences bank lending activities.…”

Section: Literatures Reviewmentioning

confidence: 99%

“…Depending on the research hypothesis and literature reviewed, the explanatory variables used in this study to determine the commercial banks lending in Ethiopia are bank-specific factors (such as deposit, capital adequacy, profitability, bank size, and liquidity), industry-specific factors (such as average lending rate, cash reserve requirement, and bank concentration) and macroeconomic factors (such as real GDP growth rate and inflation rate). Those variables are used with different combinations and reported as significant factors that determine bank lending by various studies (Ebire & Ogunyinka, 2018;Olaoluwa and Shomade, 2017;Bhattarai, 2016;Temesgen, 2016;Malede, 2014). Table 1 presents the summary of variables and their expected effect on commercial bank lending.…”

Section: Independent Variablesmentioning

confidence: 99%

Firm-specific, industry-specific and macroeconomic determinants of commercial banks’ lending in Ethiopia: Panel data approach

Yitayaw

2021

Cogent Economics & Finance

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Ethiopia have to manage their lending by giving more attention to the internal factors, which the management has control over in line with the banking industry rules and regulations recalling the influence of the general economic dynamic. I believe that this study is of interest to bankers, analysts, regulators, policymakers, and investors since it provides useful insight on the determinants of commercial banks' lending and an understanding of how bank intermediation roles may respond to internal as well as external rules, regulations, and general economic dynamics, and it will contribute to the scarce empirical evidence.

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Determinants of Lending Interest Rates of Nepalese Commercial Banks

Abstract: The aim of this study is to investigate the determinants of lending rate of Nepalese commercial banks. The analysis of data was based on a sample of 6 commercial banks observed over the period 6 years (2010 to 2015

Cited by 20 publications

References 10 publications

Determinants of Bank Lending Interest Rates in Tanzania

Determinants of Bank Lending Interest Rates in Tanzania

Price Elasticity of Sectoral Lending in Nepal

Firm-specific, industry-specific and macroeconomic determinants of commercial banks’ lending in Ethiopia: Panel data approach

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