Macroeconomic and Industry Determinants of Interest Rate Spread-Empirical Evidence

Abstract

This paper examines bank-specific, industry-specific and macroeconomic factors that influence interest rate spreads (IRS) in commercial banks in Ghana using unbalanced panel data set from 33 commercial banks covering the 21-year period 1990 to 2010. The study employed annual time series data from 1990 to 2010. Results suggest that interest rate spread in Ghana is significantly influenced by bank- specific and macroeconomic variables. These are bank ownership, Management inefficiency, Gross Domestic Product Per Capita (GDPPC) and Government Securities which all have positive relationship with IRS. Government borrowing on the other hand also influences IRS significantly but has a negative effect. The paper's findings are important for central banks, the commercial banks and managers of the economy for efficiency and effectiveness. The paper is the first of its kind in Ghana a developing country with emphasis on macroeconomic variables.

Keywords: Ghana, Interest Rate Spread, Bank-specific factors, Industry-Specific factors, Macroeconomic variables