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This study is about the determinants of the Interest Rate Spread (IRS) in commercial
banks of Pakistan. A higher IRS is of concern for the business community as it borrows at
a higher rate, which affects its relative competitive position in the market. Relative to
other institutions, banks are more sensitive to the fluctuations in the IRS. The data for
this study was collected from published annual reports of ten commercial banks from
2010 to 2017. Using the random effect model, the result shows that Non-Performing
Loans (NPL), inflation rate and exchange rate have a positive impact on the IRS.
Inflation has a significant positive impact on the IRS, while the NPL ratio and exchange
rate have an insignificant positive impact on it. On the other hand, the demand deposits
to total deposits ratio, capital adequacy ratio, and GDP growth rate have a negative
impact on the IRS. The demand deposit ratio and capital adequacy ratio have a
significant negative impact on the IRS, while GDP growth has an insignificant negative
impact on IRS.
Arif Hussain, Shams Ur Rehman, Alam Rehman. (2019) Determinants of the Interest Rate Spread in Commercial Banks of Pakistan, NUML International Journal of Business & Management, Volume 14, Issue 2.
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