1 MACROECONOMIC AND MARKET DETERMINANTS OF BANKING SECTOR INTEREST RATE SPREADS: EMPIRICAL EVIDENCE FROM LOW AND MIDDLE INCOME COUNTRIES

Abstract: This paper contributes to the literature on the determinants of interest rate spreads by using actual loan and deposit interest rate data to examine the macroeconomic and market-specific determinants of banking sector spreads in middle and low income countries. Numerous variables exogenous to the operations of commercial banks have been widely touted in academic literature and popular discourse to be important factors causing the typically high spreads in developing countries. This paper has tested such claims using panel data econometric techniques, allowing for more focused attention on the variables most likely to impact on spreads. Results are also examined to ascertain whether the determinants of spreads vary across regional groupings of countries