Asymmetries in the Thai lending–deposit rate spread: an econometric analysis

Abstract

This study examines the asymmetric behaviour of lending–deposit rate spread in the emerging Thai economy over the period 1991:1 to 2007:1. Although both the threshold autoregressive model and the Momentum Threshold Autoregressive (MTAR) model detect asymmetries, the MTAR model is a better fit for the sample data. The finding that Thai banks exhibit faster adjustment in lending rates when the spread is widening (i.e. falling deposit rates) than when the spread is narrowing (i.e. rising deposit rates) supports the consumer reaction hypothesis of Stiglitz and Weiss. This phenomenon is the result of the ‘oligopsonistic’ relationship between the banks and their powerful corporate customers, and the attendant practice of the ‘name’-based lending.

Notes

¹Scholnick (1999) provides the survey on these three types of explanations for commercial banks interest rate asymmetries in the literature.

²Much of the discussion in this section draws heavily from Thailand: A Country Study (1987) as well as various Thailand: Selected Issues, IMF Country Report No. 00/21 (2000), No. 01/147 (2001), No. 01/147 (2002), No. 01/147 (2004) and No. 01/147 (2006).

³Thailand: Selected Issues, IMF Country Report No. 01/147 (2001), p. 10.

⁴The parameter estimates of the models in Table 2 satisfy the stationarity (convergence) conditions.