Title: Determinants of interest rate spreads in the banking industry: an empirical study in an emerging country

Authors: Xuan Ngo; Huong Le; Linh Bui

Addresses: School of Banking and Finance, National Economics University, Hanoi, Vietnam ' School of Banking and Finance, National Economics University, Hanoi, Vietnam ' School of Banking and Finance, National Economics University, Hanoi, Vietnam

Abstract: This study explores the factors affecting the interest rate spread (IRS) using a secondary data set collected from 27 Vietnamese commercial banks' audited financial statements. The findings indicate that the return on average assets (ROAA), operating expenses on total assets (OPERAT), and market concentration (HHI) variables all contribute significantly to the development of the IRS as assessed by IRS1 and IRS2. Specifically, ROAA and OPERAT positively correlate with both IRS1 and IRS2 at the 5% and 1% significance levels, respectively. However, an increased HHI is associated with a decreased IRS1 but an increased IRS2. Additionally, the capital on total assets (CAP) and bank size (SIZE) variables are essential only for IRS1. By contrast, the non-interest income ratio (NII) and the liquidity ratio (LIQ) have a considerably negative effect on IRS2. Regarding macroeconomic variables, GDP growth rate and inflation have a statistically significant positive effect on IRS1 but no significant effect on IRS2.

Keywords: commercial bank; banking system; interest rate spread; IRS; emerging country.

DOI: 10.1504/AAJFA.2025.145971

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.3, pp.383 - 405

Received: 21 Feb 2022
Received in revised form: 19 Mar 2023
Accepted: 29 May 2023
Published online: 01 May 2025 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article