Are Bank Interest Rate Spreads Too High? A Simple Model for Decomposing Spreads

Montes-Negret, Fernando ; Papi, Luca

World Bank, Washington, DC

关键词: BANKS;    BANKING SYSTEMS;    INTEREST RATES;    INTEREST SPREADS;    INFLATION;   

RP-ID  :  16926

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

In the first seven months of 1995,average bank spreads in Ukraine ranged from 46 percentagepoints to 84 percentage points.The size of these spreadsmight suggest that banks enjoyed a wide profit margin.Butinflation was high in Ukraine, and its banking system hadlarge stocks of nonperforming loans.Using a simplifiedmodel to make a "quick and dirty" estimate of thespread banks need to achieve a positive real return onequity, this Note shows that nominal spreads in Ukrainewere, on average, below breakeven. It approaches thequestion from a methodological perspective, using a highlysimplified model and applying international parameters forbank performance as a benchmark.The model is a static onebased on quite restrictive assumptions, and it manipulatessimple accounting identities without any consideration ofthe strategic behavior of market participants. But what themodel can do is alert policymakers to possibly unsustainablesituations and provide estimates of the effects of changesin the policy parameters of the size of the spreads.It canbe a handy guide to assess bank spreads for a given bank orbanking system anywhere.