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Interest Spreads in Banking: Costs, Financial Taxation, Market Power, and Loan Quality in the Colombian Case 1974–96

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Listed:
  • Mr. Adolfo Barajas
  • Ms. Natalia Salazar
  • Mr. Roberto Steiner

Abstract

This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the pre liberalization (1974-88) and post liberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia’s progress in reducing operational costs and financial taxation and improving loan quality, will determine whether it can narrow the spread.

Suggested Citation

  • Mr. Adolfo Barajas & Ms. Natalia Salazar & Mr. Roberto Steiner, 1998. "Interest Spreads in Banking: Costs, Financial Taxation, Market Power, and Loan Quality in the Colombian Case 1974–96," IMF Working Papers 1998/110, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1998/110
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    Cited by:

    1. Agiomirgianakis, George & Arvanitis, Stavros & Mamatzakis, Emmanuel & Sfakianakis, George, 2024. "Net Interest Income of Greek Banks: is it a case of Bankflation?," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 417-431.
    2. Stephene Maende & Joseph Mutana & Michael Munga, 2018. "Analyzing High Interest Rate Spreads in Kenya: Panel Data Approach," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 312-327, July.
    3. Murad Khan & Abdul Jalil, 2020. "Determinants of Interest Margin in Pakistan: A Panel Data Analysis," Economies, MDPI, vol. 8(2), pages 1-14, March.
    4. Chortareas, Georgios E. & Garza-García, Jesús G. & Girardone, Claudia, 2012. "Competition, efficiency and interest rate margins in Latin American banking," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 93-103.

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