Abstract
The purpose of this study is to examine the variables that determine the interest rate spreads (IRS) of conventional banks listed on the Indonesia Stock Exchange (IDX). There are four major variables that affect a bank’s interest rate spreads, namely financial bank, macroeconomics, economic freedom and market structure variables. The study participants are conventional banks listed on the Indonesia Stock Exchange from 2013 to 2017. Data was tested by using the OLS regression model. The results of this study show that all of the financial bank variables (Liquidity Risk (LR), Return to Asset Ratio (RTAR), Capital Adequacy (CA), Cost Efficiency Ratio (CER), and Risk Aversion (RA)) can significantly affect interest rate spreads. While of the macroeconomic variables, only two can significantly affect interest rate spreads, namely Gross Domestic Product (GDP) and Inflation Rate (IR). Furthermore, all of the variables of economic freedom and market structure can significantly determine interest rate spreads. AcknowledgmentThe authors thank the Research Cluster of Governance and Competitiveness, Faculty of Administrative Sciences, Universitas Indonesia, for providing financial assistance and supporting materials related to discussion, and assistance in writing this paper.
Highlights
Banking is one of the most important sectors of the economy of Indonesia, which is a bank-based country
The purpose of this study is to examine the variables that determine the interest rate spreads (IRS) of conventional banks listed on the Indonesia Stock Exchange (IDX)
The results show that the decline iable, since it indicates the level of efficiency in in margins in the European banking system is in financial intermediation (Aydemir & Guloglu, line with the relaxation of competitive conditions 2017)
Summary
Banking is one of the most important sectors of the economy of Indonesia, which is a bank-based country. A bank acts as an institution that performs the intermediation function of the fund from the public, which is channeled back in the form of a loan. The bank’s intermediary activity presupposes the availability of interest rates paid to depositors, as well as interest rates on credits. The interest rate paid to depositors and the credit interest rate will form the spread or margin of interest rate. Interest paid to depositors is lower than interest charged to the borrower’s funds (Tarus et al, 2012). According to Ho and Saunders (1981), positive bank interest rate spreads will always exist as long as the uncertainty related to bank transactions persists
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
