tailieunhanh - BANK EFFICIENCY, OWNERSHIP AND MARKET STRUCTURE WHY ARE INTEREST SPREADS SO HIGH IN UGANDA?

Woodford (2000) has shown that the problem is more complex than fiscal versus monetary dominance. Faithful adherence to an anti-inflation monetary rule may not by itself be sufficient to ensure price stability – because government policy frameworks may engender fiscal expectations that are inconsistent with stable prices. The conclusion from this brief summary of these perspectives from economic theory is that there is no agreed view about the impact of government debt on the long-term interest rates. Future macroeconomic policy choices in a difficult fiscal context will influence interest rates in ways that are hard to predict. Markets. | ISSN 1471-0498 DEPARTMENT OF ECONOMICS DISCUSSION PAPER SERIES BANK EFFICIENCY OWNERSHIP AND MARKET STRUCTURE WHY ARE INTEREST SPREADS SO HIGH IN UGANDA Thorsten Beck and Heiko Hesse Number 277 September 2006 Manor Road Building Oxford OX1 3UQ Bank Efficiency Ownership and Market Structure Why are Interest Spreads so High in Uganda Thorsten Beck and Heiko Hesse This draft September 2006 Abstract Using a unique bank-level dataset on the Ugandan banking system over the period 1999 to 2005 we explore the factors behind consistently high interest rate spreads and margins. While foreign banks charge lower interest rate spreads we do not find a robust and economically significant relationship between privatization foreign bank entry market structure and banking efficiency. Similarly macroeconomic variables can explain little of the over-time variation in bank spreads. Bank-level characteristics on the other hand such as bank size operating costs and composition of loan portfolio explain a large proportion of cross-bank cross-time variation in spreads and margins. However time-invariant bank-level fixed effects explain the largest part of bankvariation in spreads and margins. Further we find tentative evidence that banks targeting the low-end of the market incur higher costs and therefore higher margins. JEL Classifications G21 G30 O16 Keywords Foreign Bank Entry Financial Sector Reform Bank Efficiency Financial Intermediation Uganda Beck World Bank TBeck@. Hesse Nuffield College University of Oxford . We would like to thank Alexander Al-Haschimi Steve Bond Martin Cihak Robert Cull Michael Fuchs Dino Merotto Richard Podpiera Rachel Sebudde and seminar participants at Oxford for useful comments and suggestions and are grateful to the Bank of Uganda for sharing the data with us and to Edward Al-Hussainy for help with the data. Also funding from the ESRC under grant number PTA-051-2004-00004 is gratefully acknowledged by Heiko Hesse.