Abstract
In the Baltic countries, lending rates have been among the highest in the euro area mainly reflecting national differences in the market structure as well as relatively strict credit standards applied by banks in response to the changes in their perception of risk. In this context, the deeper econometric analysis could provide additional information about the common and diverging aspects of the dynamics of lending rates in the Baltic countries. Therefore, the aim of the paper to explore the pass-through of funding costs of banks to lending rates in different lending segments in the Baltic countries during the period of 2005–2015 taking in account risk considerations. To reach the set aim, appropriate comparisons are made between different specifications of the error correction model, first of all, relating specifications with 3-month EURIBOR rate and weighted average costs of short-term euro liabilities and, secondly, specifications with and without the measures of borrower credit risk and banking risk. As a result, the conclusion was reached about superiority of 3-month EURIBOR rate as a measure of funding costs of banks. The measures characterising creditworthiness of borrowers and banking risk are significant factors determining lending rates in the Baltic countries. Across the Baltic States, the pass-through from funding costs of banks to lending rates is high. Long-term pass-through from funding costs of banks to lending rates tends to be higher in Lithuania, but creditworthiness of borrowers appeared to have the highest influence on lending rates in Latvia.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Arnold I, van Eivijk S (2014) The impact of sovereign and credit risk on interest rate convergence in the euro area. De Nederlandsche Bank Working Paper, no. 425/ June 2014
Avouyi-Dovi S, Horny G, Sevestre P (2015) The stability of short-term interest rates pass-through in the euro area during the financial market and sovereign debt crises. Banque of France Working Paper, no. 547
Banerjee A, Bystrov V, Mizen P (2013) How do anticipated changes to short-term market rates influence banks’ retail interest rates? Evidence from the four major euro area economies. J Money Credit Bank 45(7):1375–1414
Cottarelli C, Kourelis A (1994) Financial structure, bank lending rates and transmission mechanism of monetary policy. IMF Staff Papers, N 4, vol 41, pp 587–623
DeBondt G (2002) Retail bank interest rate pass-through: new evidence at the euro area level. European Central Bank Working Paper, no. 136
DeGreave F, De Jonghe O, Vennet RV (2007) Competition, transmission and bank pricing policies: evidence from Belgian loan and deposit markets. J Bank Finance 31(1):259–278
Egert B, Crespo-Cuaresma J, Reininger T (2007) Interest rate pass-through in Central and Eastern Europe: reborn from ashes merely to pass away? J Policy Model 29(2):209–225
Hansen FN-JH, Welz P (2011) Interest rates pass-through during the global financial crisis. The case of Sweden. OECD Economics Department Working Papers, no 855
Heffernan SA (1997) Modelling British interest rate adjustment: an error correction approach. Economica 64(254):211–231
Illes A, Lombardi M, Mizen P (2015) Why did bank lending rates diverge from policy rates after the financial crisis? Working Paper Series by Centre for Finance, Credit and Macroeconomics, WP 15/05
Lapinskas V (2011) Interest rate pass-through in Lithuania. Ekonomika 90(2):28–46
Mannasoo K (2013) Determinants of bank interest spreads in Estonia. East Eur Econ 51(1):36–60
Micune V (2009) Mājsaimniecībām un uzņēmumiem noteikto procentu likmju dinamikas analīze. LU raksti 744:354–372
Micune V (2010) Interest rate pass-through in Latvia: how it is affected by the crisis. In: Proceedings of the 5th international conference “An Enterprise Odyssey: From Crisis to Prosperity – Challenges for Government and Business”. Faculty of Economics and Business, University of Zagreb, Zagreb
Mojon B (2000) Financial structure and the interest rate channel of ECB monetary policy. ECB Working Paper, N 40
Paries MD, Moccero DN, Krylova E, Marchini C (2014) The retail bank interest rate pass-through the case of the euro area during the financial and sovereign debt crisis. ECB Occasional Paper Series, no. 155
Sander H, Kleimeier S (2004) Convergence in euro-zone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration. J Int Money Finance 23(3):461–492
Von Borstel J, Eickmeier S, Krippner L (2015) The interest rate pass-through in the euro area during the sovereign debt crisis. Deutsche Bundesbank Discussion Paper, no 10
Weth AM (2002) The pass-through from market interest rates to bank lending rates in Germany. Economic Research Centre of the Deutsche Bundesbank Discussion Paper, N 11/02
Winker P (1999) Sluggish adjustment of interest rates and credit rationing: an application of unit root testing and error correction modelling. Appl Econ 31:267–277
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer International Publishing AG
About this paper
Cite this paper
Micune, V. (2017). Dynamics of Lending Rates in the Baltic Countries: Influence of Funding Costs of Banks and Risk Factors. In: Tsounis, N., Vlachvei, A. (eds) Advances in Applied Economic Research. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-48454-9_41
Download citation
DOI: https://doi.org/10.1007/978-3-319-48454-9_41
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-48453-2
Online ISBN: 978-3-319-48454-9
eBook Packages: Economics and FinanceEconomics and Finance (R0)