Effect of Loan Size and Global Financial Crisis on Interest Rate Spread

تاریخ : اپریل ۲۰۱۵ - اگست ۲۰۱٦

This work researches the impact of loan size and worldwide financial crisis effect on the interest rate spreads in the commercial banking sector of Pakistan. This work was largely a quantitative research. Given that the purpose of this work was to interrogate the loan size as considerably as the issue of worldwide financial crisis on the interest rate spread, the fit design was causative predictive research design. The study population was drawn from commercial banks currently licensed and trading in Pakistan. Since the number of banks is so large, only 22 commercial banks were targeted in the study. Secondary data were utilized in this study. The data were from yearly reports of the 22 commercial banks for the 10 year period between 2005 and 2014. This study focused on the post transition period. The gathered data were organized into GRETL and EVIEWS analysis using descriptive analysis, correlation analysis and regression analysis. The study found that the model accounted for 77% of the variance in the interest rate spread of the commercial bank. It implies that this model able to explain 77% of the variance in the interest rate spread due to the proposed model. The F statistics of 22.54 was significant at 5% level significance. This shows that model is fit to explain the loan size and financial crisis effects on the interest rate spread. By employing the fixed effects regression model, noted that the loan size had a negative effect on the interest rate spreads which reveals that as the loan size increases it reduce the interest rate spreads. The results also showed that bank size has a negative influence on the banking spread, but this result is acceptable at 10% level of significance. Similarly, both the liquidity and credit risks are affected negatively to the banking spreads. Operating cost is positively influenced to the interest rate spread. Return on assets (ROA) is also positively influence to the banking spread.