Assessing the Determinants of Interest Rate Spread of Commercial Banks in Oman: An Empirical Investigation

Faris Nasif Al Shubiri and Syed Ahsan Jamil
Authors registered in the RePEc Author Service: faris nasif ALShubiri

European Research Studies Journal, 2017, vol. XX, issue 2A, 90-108

Abstract: This study aims to examine the factors that determine interest rate spread (IRS) of commercial banks listed on Muscat security market over the period 2008 – 2014. They are classified into four groups of financial, economic, market and legal indicators.The Spearman correlation matrix results show that all economic indicator variables have significant relationship with interest rate spread except GDP variable. No significant relationship exists between financial indicator variables and interest rate spread, but in legal indicator variables there is significant relationship with interest rate spread only in two variables the size of government and regulation. Finally, there is a significant relationship between market indicator based on market concentration measured by Herfindahl-Hirschman Index and interest rate spread.OLS regression analysis indicates a statistically significant impact on IRS by factors like return to asset ratio, liquidity risk and risk aversion within the financial group and unemployment rate, debt services ratio and principal repayment from the economic group and Herfindahl-Hirschman Index based on market concentration group.Finally, there is a significant impact of sound money and regulation within the legal group on IRS. The researchers recommend an adaptation in the monetary policy to exploit the high level of liquidity in the banking sector by facilitating easy access to debt to individuals as well as firms thus providing the margin competitive interest rate.

Keywords: Interest Rate Spread; Commercial Banking; Monetary Policy; Oman (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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