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Original Research Article
Determinants of interest rate spread in Rwanda: Empirical evidence
Thomas Kigabo Rusuhuzwa*1,2, Mathias Karangwa3 and Christian Nyalihama4
1National Bank of Rwanda, Kigali, Rwanda.
2College of Business and Economics, University of Rwanda, Kigali, Rwanda.
3Modeling and Forecasting Division, National Bank of Rwanda, Kigali, Rwanda.
4Economic Statistics Division, National Bank of Rwanda, Kigali, Rwanda.
*Corresponding Author Email: thkigabo@yahoo.fr
Article Number: | Pages: | | DOI:
Received: September 13, 2015 Accepted: November 11, 2015 Published: May 9, 2016
Abstract
This paper examines the determinants of interest rate spread in Rwanda by using Arellano-Bond dynamic panel data Generalized Method of Moments (GMM) estimation. The study shows that credit risks, operating cost and inflation positively influence interest rate spread in Rwanda, though the effect of the latter is quite small. Panel data fixed effects and random effect estimation also confirmed these results. The findings above imply that banks need to adopt consolidation and cost minimization strategies alongside strengthening of their credit management mechanisms to help reduce credit risk.
Keywords: Credit risk, economic efficiency, financial system, interest rate, macroeconomics