Determinants of Interest Rate Spreads - A Case of Vietnam

Pham Dang Tuan, Vo Thi Quy


Commercial banking system is a critical part of the financial sector in terms of mobilizing savings and providing loans to diverse sectors of the economy (Owusu-Antwi et al., 2017). Interest rate spread (IRS) is the difference between a country's lending and deposit rates at commercial banks (Kalsoom & Khurshid, 2016). This reflects the additional borrowing cost associated with intermediation efforts in connecting borrowers with ultimate fund lenders of commercial banks. The intermediation costs involved in deposit mobilization and channeling them into productive users are substantially higher in economies with underdeveloped banking sectors (Jayaraman & Sharma, 2003). IRS in Vietnam has been larger than that in other countries, and the large disparity of IRS persists among commercial banks. Motivated by the situation, we conducted the study to investigate the impact of bank characteristics and macroeconomic factors on IRS of 25 Vietnamese commercial banks listed in Vietnam stock markets from 2008 to 2020. The study also tests the impact of bank characteristics on IRS. We found that cost efficiency (CE) and liquidity risk (LIQ), nonperforming loans, and noninterest expenses impact positively and significantly, while bank size and asset structure (AS) impact negatively and significantly on IRS. The findings contribute insights into the effectiveness of the Vietnamese commercial banking system.


Keywords: interest rate spread, commercial banks, economic factors, bank characteristics.



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