Skip to main navigation menu Skip to main content Skip to site footer

The Behaviours of the Ukrainian Lending Rate, Deposit Rate, and Intermediation Premium

DOI:

https://doi.org/10.15678/EBER.2020.080108

Abstract

Objective: The objective of this article is to investigate the behaviours of the Ukrainian lending rate, deposit rate, and intermediation premium from January 2000 to January 2019, or the post-1999 era.

Research Design & Methods: The Perron’s (1997) endogenous unit root test, the Threshold Autoregressive model, and the Threshold Autoregressive Vector Error-Correction model are utilized to investigate the short-run dynamic and the long-run relationship between the commercial banks’ lending and deposit rates to evaluate the intermediating function of the Ukrainian lending institution.

Findings: The intermediation premium followed a stationary trend process with a structural break in July 2004. The Ukrainian banks react symmetrically to expansionary monetary policy and contractionary policy or economic shocks that pushed the intermediation premium out of its long-run path. Finally, the Granger-causality from the Ukrainian commercial banks’ lending to the deposit rates is unidirectional, indicating the exoge-neity of their lending rate from their deposit rate. This exogeneity hinders monetary policy, investment, and economic growth and, hence, social progress.

Implications & Recommendations: The policy-makers should introduce programs to remove exogeneity from the banking sector. Policy prority should focus on rectifying pervasive corruption, which is one of the major causes for the operation of the shadow banking industry leading to the exogeneity in the economy.

Contribution & Value Added: As far as it may be ascertained, there is no similar study; therefore, the methodology and findings of this investigation will close this gap in the literature and significantly contribute to the knowledge and literature.

       

Keywords

commercial banks, lending rate, deposit rate, intermediation premium, exogeneity, Granger causality, Ukraine

(PDF) Save

Author Biography

Oksana Honcharenko

Professor of Economics. Head of the Department of Economic and social disciplines in Academy of the State Penitentiary Service. She is a deputy editor of the Scientific Journal Scientific Reviewer of Siverschyny, academician of the Academy of Sciences of Ukraine. She published over 50 publications in reputable Ukrainian and international peer-reviewed journals. She investigates the influence of external and internal factors on national economies.


References

  1. Calem, P., & Mester, L. (1995). Consumer behavior and the stickiness of credit card interest rates. The American Economic Review, 85, 1327-1336.
  2. Chan, K. (1993). Consistency and Limiting Distribution of the Least Squares Estimator of a Thresh- old Autoregressive Model. Annals of Statistics, 21(2), 520-533.
  3. Chang, H.L., & Su, C.W. (2010). The lending-deposit rate relationship in eastern European countries: Evidence from the rank test for nonlinear cointegration. Czech Journal of Economics and Fi-nance, 60, 534-544.
  4. CIA-World Factbook (2019). Europe: Ukraine. U.S. Central Intelligence Agency. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/up.html on July 30, 2019.
  5. Dueker, M.J. (2000). Are prime rate changes asymmetric?. Federal Reserve Bank of St. Louis Eco-nomic Review, 82, 33-40.
  6. Enders, W., & Granger, C.W.J. (1998). Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates. Journal of Business and Economic Statistics, 16(3), 304-311.
  7. Enders, W., & Siklos, P. (2001). Cointegration and Threshold Adjustment. Journal of Business & Economic Statistics, 19(2), 166-176.
  8. Hannan, T., & Berger, A. (1991). The rigidity of prices: evidence from the banking industry. Ameri-can Economic Review, 81, 938-945.
  9. Heritage Foundation (2019). Freedom from Corruption Index-Country Rankings. Retrieved from the Global Economy https://www.theglobaleconomy.com/rankings/herit_corruption/ on July 30, 2019.
  10. Hofmann, B., & Mizen, P. (2004). Interest rate pass-through and monetary transmission: Evidence from individual financial institutions’ retail rates. Economica, 71, 99-123. http://dx.doi.org/10.1111/ecca.2004.71.issue-281
  11. Karagiannis, S., Panagopoulos, Y., & Vlamis, P. (2010). Symmetric or Asymmetric Interest Rate Adjustments? Evidence from Greece, Bulgaria and Slovenia (Hellenic Observatory Papers on Greece and Southeast Europe, GreeSE Paper No 39). Retrieved from eprints.lse.ac.uk/29168/1/GreeSE_No39.pdf on July 30, 2019.
  12. Lim, G.C. (2001). Bank Interest Rate Adjustments: Are They Asymmetric? Economic Record, 77(237), 135-147. https://doi.org/10.1111/1475-4932.00009
  13. McKinnon, R.I. (1973). Money and Capital in Economic Development. Washington, DC: Brookings Institute.
  14. National Bank of Ukraine. (2005). Decision of the Council of the National Bank of Ukraine 09.09.2005 N 17. Retrieved from https://zakon.rada.gov.ua/laws/show/v0017500-05 on July 30, 2019.
  15. Neumark, D., & Sharpe, S. (1992). Market structure and the nature of price rigidity: Evidence from the market for consumer deposits. The Quarterly Journal of Economics, 107, 657-680. http://dx.doi.org/10.2307/2118485
  16. Neutze, J., & Karatnycky, A. (2017). Corruption, Democracy, and Investment in Ukraine (Policy Pa-per, the Atlantic Council of the United State). Retrieved from https://www.files.ethz.ch/isn/91828/Corruption_Democracy_InvestmentUkraine.pdf on July 30, 2019.
  17. Nguyen, C.V., & Kravchuk, A. (2019). Ukrainian Interest Rate Pass-Through in the Post-1999 Era and the Effectiveness of the Countercyclical Monetary Policy. Journal of Eastern European and Cen-tral Asian Research, 45(2), 191-204. http://dx.doi.org/10.15549/jeecar.v6i2.309
  18. Nguyen, C.V. (2019a). Countercyclical Monetary Policy Transmission Mechanism in the U.S. and Latin American Economies over the Post-2008 Period. The International Trade Journal, 34(1), 115-135. https://doi.org/10.1080/08853908.2019.1659194
  19. Nguyen, C.V. (2019b, May 27-29). Countercyclical Monetary Policy Transmission Mechanism in the U.S. and Some Selected Transition Economies (Working Paper). International Scientific Confer-ence on Emerging Economies in Transition, Cracow University of Economics, Krakow, Poland.
  20. Nguyen, C.V. (2018). The Mexican Interest Rate Pass – Through in the Post U.S. Subprime
  21. Mortgage Crisis Era. The International Trade Journal, 32(1), 100-115. https://doi.org/10.1080/08853908.2017.1360226
  22. Nguyen, C.V., Phan, D.K., & Williams, M. (2017). The Transmission Mechanism of Russian Central Banks Countercyclical Monetary Policy since 2011: Evidence from the Interest Rate Pass-Through. Journal of Eastern European and Central Asian Research, 4(2), 1-13. http://dx.doi.org/10.15549/jeecar.v4i2.165
  23. Nguyen, C.V. (2015). The Vietnamese Lending Rate, Policy Related Rates, and Monetary
  24. Policy Post-1997 Financial Crisis. Cogent Economics and Finance, 3(1). http://dx.doi.org/10.1080/23322039.2015.1007808
  25. Nguyen, C.V., & Henney, S.M. (2013). Behavior of the US mortgage market following the deregula-tion of 1980. Journal of Business Issues, 4, 53-64.
  26. Nguyen, C.V., & Islam, A.M. (2010). Asymmetries in the Thai lending-deposit rate spread: An econ-ometric analysis. Applied Economics Letters, 17, 1229-1236. http://dx.doi.org/10.1080/00036840902902201
  27. Nguyen, C.V., Pointer, L., & Smith, C. (2008). The asymmetric behavior of the Mexica banking inter-est rate margin. Journal of Business and Economics Perspectives, 34, 57-67.
  28. Patrick, H.T. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change, 14(2), 174-89.
  29. Payne, J.E., & Waters, G.A. (2008). Interest rate pass through and asymmetric adjustment: evidence from the federal funds rate operating target period. Applied Economics, 40(11), 1355-1362. http://doi.org/10.1080/00036840600806233
  30. Perron, P. (1997). Further Evidence on Breaking Trend Functions in Macroeconomic Variables. Journal of Econometrics, 80, 355-385.
  31. Rosen, R. (2002). What goes up must come down? Asymmetries and persistence in bank deposit rates. Journal of Financial Services Research, 21, 173-193. http://dx.doi.org/10.1023/A:1015085826129
  32. Sarno, L., & Thornton, D.L. (2003). The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation. Journal of Banking and Finance, 27, 1079-1110. http://dx.doi.org/10.1016/S0378-4266 (02)00246-7
  33. Scholnick, B. (1999). Interest rate asymmetries in long-term loan and deposit markets. Journal of Financial Services Research, 16, 5-26. http://dx.doi.org/10.1023/A:1008107030893
  34. Schumpeter, J. A. (1912). Theorie der Wirtschaftlichen Entwicklung. Leipzig: Duncker and Humblot. Revised English translation by Redvers Opie: The Theory of Economic Development. Cambridge, MA: Harvard University Press, 1934.
  35. Sochan, P. (1998). The Banking System in Ukraine. Russian & East European Finance and Trade, Monetary Questions in Ukraine, 34(3), 70-93. Retrieved from https://www.jstor.org/stable/27749441 on July 30, 2019.
  36. Stiglitz, J., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71, 393-410.
  37. Thompson, M.A. (2006). Asymmetric Adjustment in the Prime Lending-Deposit Rate Spread. Review of Financial Economics, 15(4), 323-329.
  38. Tkacz, G. (2001). Endogenous thresholds and tests of asymmetry in US. Prime Rate Movements. Economics Letters, 73, 207-211.

Downloads

Download data is not yet available.