Empirical Analysis of Interest Rate Spread in Nigeria

By Muhammad Auwalu Haruna.

Published by The Social Sciences Collection

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Article: Print $US10.00
Article: Electronic $US5.00

Recent researches in Sub-Saharan Africa have indicated that interest rate spreads have remained high and are even increasing in most countries in spite of financial liberalization. This study, using alternative definitions of interest rate spread and time series dataset, empirically investigated the factors that influence the level of interest rate spread in Nigeria by means of regression analysis. The analysis showed that two determinants: bank-specific operating expenses and the industry-specific need for consistent growth of shareholders’ net worth explain the high spread in interest rates. Another finding is ISw3 (a definition of interest rate spread which includes fees and commissions) best represents intermediation cost. The findings suggest that the banking industry is not efficient or competitive, and as long as the banks can make profits without being efficient, the observed disconnection between the growth of the financial sector and that of real sector will undermine long term growth of the economy. It is, therefore, recommended that alternative sources of financial intermediation of non-bank type including capital market should be developed to support the real sector.

Keywords: Post Liberalization, Interest Rate Spread, Banking Efficiency, JEL Classification, E43, G14, G21

International Journal of Interdisciplinary Social Sciences, Volume 6, Issue 11, pp.1-18. Article: Print (Spiral Bound). Article: Electronic (PDF File; 1.029MB).

Muhammad Auwalu Haruna

Doctoral Student, Department of Economics, Ahmadu Bello University, Zaria, Kaduna, Nigeria

Muhammad Auwalu Haruna holds a B.Sc. in Economics (ABU 1983), a M.Sc in Banking & Finance (UI 1990), and a M.Sc. in Economics (ABU 2008). Haruna was also awarded the Lagos Business School’s case study based Advance Diploma in Management, 1993. Presently, Haruna is a Doctoral Student in Economics at Ahmadu Bello University, Zaria. Haruna is also a retired banker, whose banking experience spans over a period of fifteen (15) years, with a stint both in Merchant Banking and Commercial Banking. Haruna has acquired adequate training and exposure in Credit Analysis & Marketing, Treasury Management (local currency), General Management and Banking Operations (Pay & Receive - Local). Haruna has participated in Strategic Planning, other visionary agenda and processes including business re-focus and turn-around drive in the late 90s.

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