Consumer loan rate dispersion and the role of competition: evidence from Turkish banking industry

SB Baziki, Y Kilic*, MH Yilmaz

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

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    Abstract

    This paper investigates the degree of dispersion in the loan pricing of commercial banks and its association with competitive conditions in the banking industry of a large emerging economy. To quantify the lending rate variability in consumer loans, we utilize a new indexation mechanism exploiting a detailed bank-level dataset for the period January 2007–April 2020. With panel convergence methods, we show the existence of heterogeneity in long-term co-movements among banks' loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies as demonstrated by dispersion indices. Our empirical design also entails the construction of competition indicators for aggregated and consumer segment-based credit market developments. Quantile regression results validate that the improvements in industry competition are related to the lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas an opposite relationship is evident for general-purpose loans.
    Original languageEnglish
    Pages (from-to)27-47
    Number of pages21
    JournalCentral Bank Review
    Volume22
    Issue number1
    Early online date21 Apr 2022
    DOIs
    Publication statusPublished - 21 Apr 2022

    Keywords

    • Competition
    • Loan rate dispersion
    • Log-t convergence test
    • Quantile regression

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