Determinants of Commercial banks’ interest rate spreads in Botswana

Abstract

The paper investigated the determinants of commercial banks’ interest rate spreads in Botswana using time series cross-sectional analysis for the period of 2004Q1 to 2014Q4. Factors empirically tested are bank-specific, industry-specific and   macroeconomic data. Results indicate that bank intermediation, GDP, inflation and bank concentration are positively related to interest rate spread. The negative sign of the tax variable was unexpected as higher taxes are expected to lead to wider spreads. Financial crisis and monetary policy seem not to affect interest rate spreads. The  significance of GDP, inflation and bank concentration variables show the importance of maintaining stable macroeconomic factors.

Keywords: Botswana; Banks; Interest rate Spreads