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Using Deposit Interest Rates In Setting Loan Interest Rates: Evidence From Turkey

Author

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  • Önder Kaymaz
  • Özgür Kaymaz

Abstract

Bank credit margins are set by two dynamics: loan interest rates and deposit interest rates. The latter is the leading funding cost for the commercial banks. Sampling the period running from the last financial quarter of 2002 to the last financial quarter of 2009, we consider all the listed commercial banks operating in Turkey. We obtain strong evidence of one-way causality between loan interest rates and deposit interest rates. In setting their loan interest rates, banks use deposit interest rates of the preceding period. The reverse is not true. Concurring with the literature, this causation implies that deposit interest rates explain the changes in the margin.

Suggested Citation

  • Önder Kaymaz & Özgür Kaymaz, 2011. "Using Deposit Interest Rates In Setting Loan Interest Rates: Evidence From Turkey," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(3), pages 45-53.
    • Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:3:p:45-53
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    Citations

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    Cited by:

    1. Rofikoh Rokhim & Yinylia Rusli, 2012. "Macro economics factors and bank lending behaviour in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 4(2), pages 153-162, April.

    More about this item

    Keywords

    Causality; Bank; Funding cost; Deposit interest rate; Loan interest rate; Size; Margin; Istanbul Stock Exchange.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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