An Empirical Study on the Factors Affecting the Interest Rate Spread of Listed Conventional Commercial Banks of Bangladesh



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Submitted Sep 1, 2021
Published Oct 17, 2021
10.24018/ejbmr.2021.6.5.1086

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This paper aims to explore the factors affecting the interest rate spread of the listed conventional commercial banks of Bangladesh from 2011 to 2019. For this, banks' interest rate spread has been considered a dependent variable while bank-specific, industry-specific, and macroeconomic factors have been considered independent variables. Bank-specific factors are credit risk, bank size, operating cost, liquidity risk, net interest income, capital adequacy, return on equity. The bank industry-specific factor is market share, while macroeconomic factors are GDP and Inflation. Pooled Ordinary Linear Regression analysis and the random-effect method have been used to investigate the impact of the factors on interest rate spread. The results demonstrate that credit risk, operating costs, and liquidity risk positively impact interest rate spread. The asset size and GDP have both positive and negative relationships depending on the circumstances. In contrast, net interest income, capital adequacy, return on assets, and market share have a negative relationship. The study's findings will assist the regulatory body of the banks in developing strategies to maintain a satisfactory level of interest rate spread.

Keywords: Credit risk, Interest rate spread, Loan market power, Risk aversion

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