Pricing of retail deposits in Croatia: including the premium for country default

Neven Vidaković

MPRA Paper from University Library of Munich, Germany

Abstract: The pricing of interest rates on retail deposits in Croatia does not follow standard term structure or quantity premium for pricing deposits. Banks often pay no premium on time or on quantity of deposits. On one hand this is not surprising since the banking sector has been very liquid for last several years and the banks see deposits as a cost, but what is interesting is that the banks do not price in forward looking expectation regarding the state of economy or country rating. This paper uses a simple Black – Sholes model and incorporates forward looking expectations regarding the state of the economy into the existing deposit pricing structure for largest banks in Croatia.

Keywords: deposit interest rate; probability of default; banks (search for similar items in EconPapers)
JEL-codes: E43 G21 G32 (search for similar items in EconPapers)
Date: 2014-03-28
New Economics Papers: this item is included in nep-mac
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