Interest rate spread determinant based on the interdependency relationship between a bank’s loan rate and time deposit rate

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This study analyzes the factors responsible for the lower net interest rate at commercial banks located in Indonesia, Thailand and the Philippines. Data were collected from 35, 10 and 13 commercial banks in Indonesia, Thailand, and the Philippines, respectively, from 2012 to 2020 using the Fixed effect model. The Simultaneous Equation Model was used to analyze the macroeconomic factors and banks’ specific characteristics towards Loan and Time Deposit rates. The result showed that macroeconomic factors, such as the inflation rate, significantly affect loan and time deposit rates in these countries. In Indonesia, bank competition should be reduced and banks’ stability should be higher to minimize Net Interest Margin Spread (difference between Loan Rate and Deposit Rate). In the Philippines, banks should increase their capital and liquidity. So, they will be more confident and prudent in lowering their NIM. Thailand’s banking industry has unique characteristics with high monopoly power. The bigger and greater the market share, the larger the interest rate spread on customers. Therefore, regulators in each country need to consider these important variables when making decisions on lowering the net interest rates by banks to enhance social welfare.

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    • Table 1. Definition of variables from equation 1
    • Table 2. Definition of variables from equation 2
    • Table 3. Regression results of the Loan Interest Rate
    • Table 4. Regression results of the Time Deposit Rate
    • Table A1. Descriptive statistics from equation 1 (Loan Rate)
    • Table A2. Descriptive statistics from equation 3 (Time Deposit Rate)
    • Table B1. Correlation within variables from equation 1 (Loan Rate – Indonesia)
    • Table B2. Correlation within variables from equation 3 (Time Deposit Rate – Indonesia)
    • Table C1. Correlation within variables from equation 1 (Loan Rate – the Philippines)
    • Table C2. Correlation within variables equation 3 (Time Deposit Rate – the Philippines)
    • Table D1. Correlation within variables from equation 1 (Loan Rate – Thailand)
    • Table D2. Correlation within variables from equation 3 (Time Deposit Rate – Thailand)
    • Conceptualization
      Vina Nugroho
    • Data curation
      Vina Nugroho
    • Investigation
      Vina Nugroho, Gracia Ugut
    • Writing – original draft
      Vina Nugroho
    • Writing – review & editing
      Vina Nugroho
    • Formal Analysis
      Roy Sembel, Edison Hulu
    • Supervision
      Roy Sembel, Edison Hulu, Gracia Ugut
    • Validation
      Roy Sembel
    • Visualization
      Roy Sembel
    • Methodology
      Edison Hulu
    • Software
      Edison Hulu
    • Funding acquisition
      Gracia Ugut
    • Project administration
      Gracia Ugut