Determinants of Bank Interest Spreads in Tajikistan

Pietro Calice

No 11044, Policy Research Working Paper Series from The World Bank

Abstract: Despite far-reaching banking sector reforms over the past few years, financial intermediation in Tajikistan continues to lag behind structural peers and the Caucasus and Central Asia region. At the same time, bank interest rate spreads, a standard measure of financial intermediation costs, have remained significantly higher than those of peers, ranking among the highest in the world. This paper examines the determinants of interest rate spreads in Tajikistan using a bank-level panel data set for the first quarter of 2011 to the fourth quarter of 2022. The findings show that bank-specific factors, particularly income diversification, loan size, risk aversion, market power, credit risk, and the macroeconomic and institutional environment within which banks operate, explain a large proportion of cross-bank, cross-time variation in spreads. The results suggest that there is ample room to promote economies of scale and enhance competition in the banking system while strengthening the operating environment.

Date: 2025-01-24
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