The Determinant of Bank Interest Rates Spreads in Ghana

Ransford Quarmyne Churchill; Collins Owusu Kwaning; Owusu Ababio

doi:doi:10.11648/j.ijebo.20140204.11

| Peer-Reviewed

The Determinant of Bank Interest Rates Spreads in Ghana

Ransford Quarmyne Churchill, Collins Owusu Kwaning, Owusu Ababio

Published in International Journal of Economic Behavior and Organization (Volume 2, Issue 4)

Received: 20 July 2014 Accepted: 29 July 2014 Published: 10 August 2014

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

In Ghana, there is a widespread perception that interest rate spread is too wide. Banks, on the other hand, had justified the wide interest rate spread on the basis of some economic variables that affect the banks. The purpose of this paper is to examine the determinants of the bank interest margin in Ghana. This paper therefore examines the determinants of banking sector interest rate spreads in Ghana. Based on the availability of data, the paper focused on some banking industry-specific and macroeconomic determinants of (IR) spread. This study used exploratory and explanatory approaches. The exploratory methodology was used to identify the factors affecting determination of interest rate spreads and an explanatory approach was employed to establish how the factors affect the determination of interest spread in Ghana. The study found that factors affecting the determination of interest rate spread in Ghana are GDP, Exchange Rate, Prime Rate, Treasury Bill Rate, Liquidity, Overhead Costs, Loan Loss Provisioning and Profit Margin.

Published in	International Journal of Economic Behavior and Organization (Volume 2, Issue 4)
DOI	10.11648/j.ijebo.20140204.11
Page(s)	49-57
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Interest Rate Spread, Treasury Bills, Bank of Ghana, Exchange Rate, Prime Rate, Liquidity

References

[1]	Anyanwu J. C. (1990). Monetary Economics Theory Policy and Institutions Hybrid Publishers Ltd. Pp 247- 274
[2]	Barajas, R. S and Salazar (1999). Foreign Investment in Colombia‟s Financial Sector of IMF working Paper. Vol. 99. Pp 9.
[3]	Bawumia, M., Belnye, F. and Ofori, M. E. (2005) The Determination of Bank Interest Spreads in Ghana: An Empirical Analysis of Panel Data, Working Paper, Monetary Policy Committee, Bank of Ghana.
[4]	Brock, P. and Franken, H. (2003). Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001, Working Papers UWEC- 2003-25, University of Washington, Department of Economics.
[5]	Brock, Philip and Franken, Helmut (2003). Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001. www.econ.washington.edu/user/plbrock/ChileSpreads091603.pdf
[6]	Buchs T.D and Mathisen (2005). Competition and Efficiency in Banking: Behavioral Evidence from Ghana. Pp 1-25.
[7]	Caprio, G., Jr. 1996. “Banking on financial reform? A case of sensitive dependence on initial conditions”. In G. Caprio, Jr., I. Atiyas and W.J. Hanson, eds., Financial Reform: Theory and Experience. New York: Cambridge University Press.
[8]	Chirwa E.W. and Mlachila (2004). Financial Reforms and Interest Rate Spreads in Commercial Banking System in Malawi. Vol. 51. Pp 5.
[9]	Cho, Y.J (1988). The Effect of Financial Liberalization on the Efficiency of Credit Allocation: Some Evidences from South Korea. Journal Development Economics. Vol. 29. Pp. 101-110.
[10]	Cottarellic, C. and Kourelis A. (1994). Financial Structure, Bank Lending Rates and the Transmission Mechanism of Monetary Policy. Pp 15-20.
[11]	Demirguc-Kunt, A. and Huizinga, H. (1998) Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence, World Bank Economic Review, Vol. 13 No. 2, pp. 379-408.
[12]	Fry, M. 1995. Money, Interest, and Banking in Economic Development, Second Edition. Baltimore: Johns Hopkins University Press.
[13]	Gelbard, Enrique and Pereira Leite, Sergio (1999). Measuring Financial Development in Sub-Saharan Africa. IMF Working Paper, pp. 99 – 105.
[14]	Hannan, T.H and A.N. Berger (1991). The Rigidity of Prices: Evidence from the Banking Industry. Vol. 81. Pp 938-983
[15]	Ho T.S.Y and Saunders. (1981). The Determinants of Bank Interest Margins: Theory and Empirical Evidence. Pp. 15-58.
[16]	Ho, T. and Saunders, A. (1981). The Determinants of Bank Interest Margins: Theory and Empirical Evidence, Journal of Financial and Quantitative Analysis, Vol. 16, No. 4, pp. 581- 600.
[17]	Ize A. Kovanen and Henckel T. (1999). Central Banking without Central Bank Money. Pp 23-35
[18]	Jayaraman, K. and Sharma, R. (2003). Determinant of Interest Rate Spread in the Pacific Island Countries: Some Evidences from Fiji. Pp. 8-9
[19]	Khawaja and M. Din (2007). Determinants of Interest Rate Spreads in Pakistan- the Pakistan Development Review. Vol. 46. Pp 129-143
[20]	Mishkin S. Frederic (1999). Financial Consolidation: Dangers and Opportunities. Journal of Banking and Finance. Vol. 23. Pp. 675-691.
[21]	Nuemark, David and Sharpe (1992). Market Structure and Nature of Price Rigidity: Evidence from the Market for Consumer Deposits. MIT Press, Vol. 107. Pp 657-737.
[22]	Pandey I.M. (1999) Financial Management. 10th Edition. Pp 20-24.
[23]	Randall, Ruby (1998). Interest Rate Spreads in the Eastern Caribbean. IMF Working Paper, pp. 59 and pp. 98.
[24]	Robinson, John W. (2002). Commercial Bank Interest Rate Spreads in Jamaica: Measurement, Trend and Prospects. www.boj.org.jm/uploads/pdf/papers_pamphlets.pdf
[25]	Sologoub, Dimitry (2006). The determinants of Bank Interest Margins and Profitability: Case of Ukraine. www.bof.fi/bofit/seminar/bofcef06/sologub.pdf.
[26]	Stiglitz, J. E and Weiss A. M. (1981) Credit Rationing in Markets with imperfect Information. American Economic Review. Pp 313-440

Cite This Article

Plain Text BibTeX RIS

APA Style

Ransford Quarmyne Churchill, Collins Owusu Kwaning, Owusu Ababio. (2014). The Determinant of Bank Interest Rates Spreads in Ghana. International Journal of Economic Behavior and Organization, 2(4), 49-57. https://doi.org/10.11648/j.ijebo.20140204.11

Copy | Download

ACS Style

Ransford Quarmyne Churchill; Collins Owusu Kwaning; Owusu Ababio. The Determinant of Bank Interest Rates Spreads in Ghana. Int. J. Econ. Behav. Organ. 2014, 2(4), 49-57. doi: 10.11648/j.ijebo.20140204.11

Copy | Download

AMA Style

Ransford Quarmyne Churchill, Collins Owusu Kwaning, Owusu Ababio. The Determinant of Bank Interest Rates Spreads in Ghana. Int J Econ Behav Organ. 2014;2(4):49-57. doi: 10.11648/j.ijebo.20140204.11

Copy | Download

@article{10.11648/j.ijebo.20140204.11,
  author = {Ransford Quarmyne Churchill and Collins Owusu Kwaning and Owusu Ababio},
  title = {The Determinant of Bank Interest Rates Spreads in Ghana},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {2},
  number = {4},
  pages = {49-57},
  doi = {10.11648/j.ijebo.20140204.11},
  url = {https://doi.org/10.11648/j.ijebo.20140204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20140204.11},
  abstract = {In Ghana, there is a widespread perception that interest rate spread is too wide. Banks, on the other hand, had justified the wide interest rate spread on the basis of some economic variables that affect the banks. The purpose of this paper is to examine the determinants of the bank interest margin in Ghana. This paper therefore examines the determinants of banking sector interest rate spreads in Ghana. Based on the availability of data, the paper focused on some banking industry-specific and macroeconomic determinants of (IR) spread. This study used exploratory and explanatory approaches. The exploratory methodology was used to identify the factors affecting determination of interest rate spreads and an explanatory approach was employed to establish how the factors affect the determination of interest spread in Ghana. The study found that factors affecting the determination of interest rate spread in Ghana are GDP, Exchange Rate, Prime Rate, Treasury Bill Rate, Liquidity, Overhead Costs, Loan Loss Provisioning and Profit Margin.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - The Determinant of Bank Interest Rates Spreads in Ghana
AU  - Ransford Quarmyne Churchill
AU  - Collins Owusu Kwaning
AU  - Owusu Ababio
Y1  - 2014/08/10
PY  - 2014
N1  - https://doi.org/10.11648/j.ijebo.20140204.11
DO  - 10.11648/j.ijebo.20140204.11
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 49
EP  - 57
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20140204.11
AB  - In Ghana, there is a widespread perception that interest rate spread is too wide. Banks, on the other hand, had justified the wide interest rate spread on the basis of some economic variables that affect the banks. The purpose of this paper is to examine the determinants of the bank interest margin in Ghana. This paper therefore examines the determinants of banking sector interest rate spreads in Ghana. Based on the availability of data, the paper focused on some banking industry-specific and macroeconomic determinants of (IR) spread. This study used exploratory and explanatory approaches. The exploratory methodology was used to identify the factors affecting determination of interest rate spreads and an explanatory approach was employed to establish how the factors affect the determination of interest spread in Ghana. The study found that factors affecting the determination of interest rate spread in Ghana are GDP, Exchange Rate, Prime Rate, Treasury Bill Rate, Liquidity, Overhead Costs, Loan Loss Provisioning and Profit Margin.
VL  - 2
IS  - 4
ER  -

Copy | Download

Author Information

Ransford Quarmyne Churchill

Department of Accountancy, School of Business and Management Studies, Accra Polytechnic
Collins Owusu Kwaning

Department of Liberal Studies, School of Business and Management Studies, Accra Polytechnic Ghana
Owusu Ababio

Department of Liberal Studies, School of Business and Management Studies, Accra Polytechnic Ghana

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Ransford Quarmyne Churchill, Collins Owusu Kwaning, Owusu Ababio. (2014). The Determinant of Bank Interest Rates Spreads in Ghana. International Journal of Economic Behavior and Organization, 2(4), 49-57. https://doi.org/10.11648/j.ijebo.20140204.11

Copy | Download

ACS Style

Ransford Quarmyne Churchill; Collins Owusu Kwaning; Owusu Ababio. The Determinant of Bank Interest Rates Spreads in Ghana. Int. J. Econ. Behav. Organ. 2014, 2(4), 49-57. doi: 10.11648/j.ijebo.20140204.11

Copy | Download

AMA Style

Ransford Quarmyne Churchill, Collins Owusu Kwaning, Owusu Ababio. The Determinant of Bank Interest Rates Spreads in Ghana. Int J Econ Behav Organ. 2014;2(4):49-57. doi: 10.11648/j.ijebo.20140204.11

Copy | Download

@article{10.11648/j.ijebo.20140204.11,
  author = {Ransford Quarmyne Churchill and Collins Owusu Kwaning and Owusu Ababio},
  title = {The Determinant of Bank Interest Rates Spreads in Ghana},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {2},
  number = {4},
  pages = {49-57},
  doi = {10.11648/j.ijebo.20140204.11},
  url = {https://doi.org/10.11648/j.ijebo.20140204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20140204.11},
  abstract = {In Ghana, there is a widespread perception that interest rate spread is too wide. Banks, on the other hand, had justified the wide interest rate spread on the basis of some economic variables that affect the banks. The purpose of this paper is to examine the determinants of the bank interest margin in Ghana. This paper therefore examines the determinants of banking sector interest rate spreads in Ghana. Based on the availability of data, the paper focused on some banking industry-specific and macroeconomic determinants of (IR) spread. This study used exploratory and explanatory approaches. The exploratory methodology was used to identify the factors affecting determination of interest rate spreads and an explanatory approach was employed to establish how the factors affect the determination of interest spread in Ghana. The study found that factors affecting the determination of interest rate spread in Ghana are GDP, Exchange Rate, Prime Rate, Treasury Bill Rate, Liquidity, Overhead Costs, Loan Loss Provisioning and Profit Margin.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - The Determinant of Bank Interest Rates Spreads in Ghana
AU  - Ransford Quarmyne Churchill
AU  - Collins Owusu Kwaning
AU  - Owusu Ababio
Y1  - 2014/08/10
PY  - 2014
N1  - https://doi.org/10.11648/j.ijebo.20140204.11
DO  - 10.11648/j.ijebo.20140204.11
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 49
EP  - 57
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20140204.11
AB  - In Ghana, there is a widespread perception that interest rate spread is too wide. Banks, on the other hand, had justified the wide interest rate spread on the basis of some economic variables that affect the banks. The purpose of this paper is to examine the determinants of the bank interest margin in Ghana. This paper therefore examines the determinants of banking sector interest rate spreads in Ghana. Based on the availability of data, the paper focused on some banking industry-specific and macroeconomic determinants of (IR) spread. This study used exploratory and explanatory approaches. The exploratory methodology was used to identify the factors affecting determination of interest rate spreads and an explanatory approach was employed to establish how the factors affect the determination of interest spread in Ghana. The study found that factors affecting the determination of interest rate spread in Ghana are GDP, Exchange Rate, Prime Rate, Treasury Bill Rate, Liquidity, Overhead Costs, Loan Loss Provisioning and Profit Margin.
VL  - 2
IS  - 4
ER  -

Copy | Download