Interest margins, lending rates and bank productivity among Chinese provinces

Enzo Dia, Lunan Jiang, Lorenzo Menna () and Lin Zhang

International Review of Economics & Finance, 2023, vol. 84, issue C, 104-127

Abstract: We document a substantial dispersion of interest margins charged by commercial banks across Chinese provinces. As our empirical study provides evidence that resource costs are the primary drivers of Chinese bank interest margins, we build a parsimonious dynamic stochastic general equilibrium model that captures this feature. Our analysis suggests that productivity differentials in the banking industry among Chinese provinces are substantial. Banks in less developed provinces adopt more labor-intensive technologies that enable them to smooth the impact of productivity shocks. The adoption of a common nationwide banking technology would cause substantial increases in financial costs and amplify the volatility of macroeconomic fluctuations across provinces.

Keywords: Interest margins; Resource costs; Chinese economy; Heterogeneous regions (search for similar items in EconPapers)
JEL-codes: E43 G21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:84:y:2023:i:c:p:104-127

DOI: 10.1016/j.iref.2022.10.022

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