Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies

This paper analyzes the main trends and patterns of nominal lending interest rates and lending-deposit interest rate spreads in emerging markets and developing economies. Using data from 140 emerging markets and developing economies, analysis shows...

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Main Authors:	Feyen, Erik, Zuccardi Huertas, Igor
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	LENDING RATES SPREADS EMERGING MARKET ECONOMIES INTEREST SPREAD
Online Access:	http://documents.worldbank.org/curated/en/993931599674780457/Bank-Lending-Rates-and-Spreads-in-EMDEs-Evolution-Drivers-and-Policies http://hdl.handle.net/10986/34478

id	okr-10986-34478
recordtype	oai_dc
spelling	okr-10986-344782022-09-20T00:11:43Z Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies Feyen, Erik Zuccardi Huertas, Igor LENDING RATES SPREADS EMERGING MARKET ECONOMIES INTEREST SPREAD This paper analyzes the main trends and patterns of nominal lending interest rates and lending-deposit interest rate spreads in emerging markets and developing economies. Using data from 140 emerging markets and developing economies, analysis shows that nominal lending rates and spreads declined between 2003 and 2017, with regional heterogeneity. In addition, it finds that less economically and financially developed countries tend to exhibit higher lending rates and spreads. These higher rates tend to be driven by higher spreads, not deposit interest rates. Also, illustrative regressions suggest that relevant correlates of nominal lending rates include inflation, public debt, and policy interest rate (macro-fiscal conditions); overhead costs, nonperforming loans, and non-interest income (banking characteristics); and credit bureau coverage and time to resolve insolvency (business environment). Finally, illustrative decompositions of the level and 10-year change between 2007 and 2017 of nominal lending rates find relative differences across regions. On the decline of nominal interest rates in that decade, rising public debt and nonperforming loans have pushed rates up, which was counterbalanced by a reduction in inflation, the policy interest rate, and overhead costs and a better business environment. Since the global financial crisis, a common global factor has increased in importance and has contributed to the downward trend in nominal lending rates. 2020-09-17T20:04:47Z 2020-09-17T20:04:47Z 2020-09 Working Paper http://documents.worldbank.org/curated/en/993931599674780457/Bank-Lending-Rates-and-Spreads-in-EMDEs-Evolution-Drivers-and-Policies http://hdl.handle.net/10986/34478 English Policy Research Working Paper;No. 9392 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	LENDING RATES SPREADS EMERGING MARKET ECONOMIES INTEREST SPREAD
spellingShingle	LENDING RATES SPREADS EMERGING MARKET ECONOMIES INTEREST SPREAD Feyen, Erik Zuccardi Huertas, Igor Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
relation	Policy Research Working Paper;No. 9392
description	This paper analyzes the main trends and patterns of nominal lending interest rates and lending-deposit interest rate spreads in emerging markets and developing economies. Using data from 140 emerging markets and developing economies, analysis shows that nominal lending rates and spreads declined between 2003 and 2017, with regional heterogeneity. In addition, it finds that less economically and financially developed countries tend to exhibit higher lending rates and spreads. These higher rates tend to be driven by higher spreads, not deposit interest rates. Also, illustrative regressions suggest that relevant correlates of nominal lending rates include inflation, public debt, and policy interest rate (macro-fiscal conditions); overhead costs, nonperforming loans, and non-interest income (banking characteristics); and credit bureau coverage and time to resolve insolvency (business environment). Finally, illustrative decompositions of the level and 10-year change between 2007 and 2017 of nominal lending rates find relative differences across regions. On the decline of nominal interest rates in that decade, rising public debt and nonperforming loans have pushed rates up, which was counterbalanced by a reduction in inflation, the policy interest rate, and overhead costs and a better business environment. Since the global financial crisis, a common global factor has increased in importance and has contributed to the downward trend in nominal lending rates.
format	Working Paper
author	Feyen, Erik Zuccardi Huertas, Igor
author_facet	Feyen, Erik Zuccardi Huertas, Igor
author_sort	Feyen, Erik
title	Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
title_short	Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
title_full	Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
title_fullStr	Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
title_full_unstemmed	Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies
title_sort	bank lending rates and spreads in emdes : evolution, drivers, and policies
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/993931599674780457/Bank-Lending-Rates-and-Spreads-in-EMDEs-Evolution-Drivers-and-Policies http://hdl.handle.net/10986/34478
_version_	1764480983859462144

Bank Lending Rates and Spreads in EMDEs : Evolution, Drivers, and Policies

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