A study of the determinants of interest spreads in the Philippines from 2000-2009

• Main Authors: Arciaga, Alexi Val B., Chua, Christina Camille S., Pascual, Martin Pocholo T., Tomas, Matthew Antoine P.
• Format: text
• Language: English
• Published: Animo Repository 2010
• Subjects: Financial institutions > Management; Banks and banking > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18478
• Institution: De La Salle University

This paper examines the factors affecting the interest spreads in both the commercial and universal banking industry in the Philippines for the past decade, 2000-2009. An ordinary least squares regression model was used in measuring the effects of the variables. The data used were taken from the Bangko Sentral ng Pilipinas (BSP) and the National Statistical Coordination Board (NCSB) at quarterly intervals. The group classified the variables observed either as bank-specific or as a macroeconomic variable. The bank-sepcific variables consist of aggregate operating cost, aggregate liquidity, aggregate credit risk, and the market structure of each banking industries. While the macroeconomic variables consist of aggregate required reserves, real gross domestic product (GDP) growth, inflation rate, and discount rates. Banking competition may exist in different degrees across countries. In the Philippines' case, the market structure as measured by the herfindahl index shows that competition exists and that no monopolistic behavior is present in each of the banking sectors. The results show that both bank-specific and macroeconomic factors may affect the interest spreads of both banking industries in the country.