AN ANALYSIS OF EFFECTIVE FACTORS ON BANK INTEREST MARGIN RATE (CASE STUDY: ANSAR BANK)

Transcription

1 AN ANALYSIS OF EFFECTIVE FACTORS ON BANK INTEREST MARGIN RATE (CASE STUDY: ANSAR BANK) Ahmad Akbari Nasab (MA) Department of Management, Qeshm Branch, Islamic Azad University, Qeshm, Iran Ali Savand Roomi (MA) Department of Management, Sirjan Branch, Islamic Azad University, Sirjan, Iran Abstract: In this study were going to analyze various factors on bank interest rates of all the branches of Ansar Bank during 1370 to 1389-we are also going to offer some solutions to decrease this rate and idealize Irans bank systems especially Ansar Bank.The dependent variable of bank interest rate and the independent variables include the outstanding claims and banks last due date to the whole loans, proportion of computing costs to the whole facilities, legal deposit rate, each banks share in deposit market, indicator of banking industry, indicator of industrial produce growth and inflation rate.for testing hypotheses and evaluating patterns of economic technique, we used OLS way casual squares.the results show that Ansar bank interest rate in the first step influenced by computing cost to the whole loans and in the second phase by inflation rate and after that is influenced by the indicator of banking industry. The other theories i.e the effect of the industrial produce growth indicator, legal deposit rate, each banks share in deposit market and finally the proportion of outstanding claims and the banks last Due date of the whole loans to the bank interest rate in accordance with having no reasonable statistical connection, have not validated. Key words: BANK INTEREST MARGIN RATE, LEGAL DEPOSIT RATE, INFLATION RATE, HERSHXAN INDICATOR, IN POSITIONAL, FACILITIES, MONETARY SUPPRESSION. 1. Introduction Monetary reforms have been one of the major parts of balancing programs in developing countries. According to Makkinon. Show efficiency and flexibility of monetary system for the growth of market is crucial this theory shows that governments control in monetary systems disorders mechanism of market and will result in monetary suppression and in accordance to that will decrease the economical growth.(makkinon,show,1998). Countries that face major economical instability, monetary spending without having economical stability policies, and having no observational systems in banking can and up in bankruptcy of monetary systems.(caprio and Estiglitea,1999). Banks attract people by increasing their interest rate in deposit accounts and can give especial facilities to various economical parts. On the other hand, with applying competitive systems in banks, efficiency would be decreased.(livine,1999). Real low interest rates for loans encourage administering investment would be ration out or stopped.(kemijani,1385). The investments that banks keep in to face expected and unexpected dangers can be a reason for increasing the margin of bank interest rates. Usually when banks don t rely on depositor or loan takers, keep more money of the least investment deposit to protect credit risks (Islamic Parliament research center,1383). Efficiency of banking system in some cases can be compared with the amount of interest rate that in fact is the difference of banks received interest rate with paid interest rate. This difference somehow can determine the efficiency of bank with including bank expenses(afanasieff,2002) The quality of given loans has a major role in instance the withholding facility in banks decrease the quality of its possession. Such loans do not assure their recovery, so banks are forced to compensate the costs. (Default, 1999). Power of market directly determines the risk in banks, so if in a financial market just one bank proffered to others, this bank can trade between giving high- risk loans with high efficiency and low-risk loans with low efficiency.(barajas,1999). Conservative rules are crucial in financial markets. Banks not only work as a mediator between depositors and investors but also have a key role in making money. The close relation between deposits and actual produce, employment and inflation rate makes a considerable outer effect. Money authorities plan some rules about the assets of bank and the relation between debts and asset or between deposits and supplies. They control risk in the quality of loans and neglecting supplies for claims that are not sure to be paid back (Obdeh. Tabrizi,1384). COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1084

2 2. Literature Review and Research Background This study is looking for theoretical ways for answering to the main questions of research lie the effective factors on the margin of banks, interest rate. In theoretical literature according to economical theories the effective factors on the margin of bank interest rate lie lawful deposit rate, redescendance rate, inflation, economical stability, late claims and economical growth, the way of their effect on the margin of bank interest rates, were identified.always there were broad discussions of why the margin of bank interest rate in developing countries goes to the same rate and are not in accordance with developed countries. A lot of experts believe the reason of the decrease in rate is in the change of bank styles. In a Lot of developing countries without deposit account insurance. Most banks are in danger of high rates of legal money supplies. That in fact works as a kind if implicit tax and causes the bank interest margin rate to go up (Default, 1988). Since the margin of bank is the difference between the two interest rate (received and paid) of bank, the nature and definition of interest rate is a start point for our discussion(baseri,2002). Interest rate as the price of any other thing is determined by two factors of offer and demand (Karami, 1385, recorded in economical research. 6th years, number 21). The rules of financial market include the amount of interest rate. High rates of lawful supplies and with holding validities result in low rates of investment and negative effects on economical growth (Makkinon, 1998). At the time of instability of economy law makers make banks to keep more money supplies to work out with loan Bankoul and this is a reason that makes banks to lower their facilities because they have less money supplier to pay (Ho and Saunnders,1381). Research Background The Islamic parliament research center (1383): In this study by an accounting equation we accounted the bank margin interest rate in different rate margin is the high bank interest rate margin is the high expectancy of banks of gained benefit share that has negative effect on depositors and receivers of facilities. As a political advice, the decrease of bank interest rate margin through the decrease of the interest of facilities and not interest rate of deposits is a good idea is done by applying it to banks according to karate function Mallocheill a and chirra,(2002): This study is working on the effect of financial reforms on the bank interest rate margin in Malavi banking system. The results show that in the next period of financial spreading, the bank interest rate will be increased. the reason for ascending of bank interest margin is the up going operating cost, not specified sums for claims that are not sure to be paid. Financial tax like legal supply rate, redescendance rate and high inflation are instable. Afanasif and villa laser,(2005): In this study the manner of bank interest margin rate in Brazil is surveyed. The results of this survey shows that bank interest margin rate in Brazil in the recent years has had a descending trend. The condition of stable major Economy (kalaan) is one of the most effective factors on the reduction of bank interest margin rate during this time. The main feature of bank interest margin rate in Brazil is the large number of instabilities among different banks. 3. General aim of the study In this study we are looking for the effective elements on interest margin rate in Ansar bank. And with showing some solutions for reducing this rate, we try to increase the efficiency of banking system. Identifying the effective elements on increasing the efficiency of Ansar bank is the main aim of this research. Regarding the economical theories, economical boost without a developed banking system is impossible and farfetched. Since the economical growth as one of the most important indicators of living in the society, the facilitating factors of it are of great importance. If we identify the effective factors on this rate, we will be able to control the effective parts on it and then reduce this rate and promote the efficiency of banking system in Ansar Bank. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1085

3 4. The hypotheses of this survey 4.1. The main hypothesis: Analyzing the effective factors on interest margin rate in Ansar Bank 4.2. Secondary hypotheses First hypothesis: The more the postponed claims and the last due date of banks to the whole loans goes up, the more bank interest margin rate goes up. Second hypothesis: The more the operating costs in regard to the whole banking loans increase, the more bank interest margin rate goes up. Third hypothesis: The more each economical banks share of deposit market goes up, the more bank interest margin rate goes up as well. Fourth hypothesis: The more legal money supply goes up, the bank interest rate increases as well. Sixth hypothesis: With increasing the industrial produce indicator, bank interest margin rate goes up. Seventh hypothesis: With increasing the inflation rate, the bank interest margin rate goes up. 5. Research Methods In this study the required information is identified by documentary method and library research. In the next level for statistical inference we answer the questions of research and lest the hypo theses to gather the data. Finally or analyzing the effective elements on bank interest margin rate. In Ansar Bank, we use the economical testing model with OLS method to measure pattern coefficient and in this respect we analyze the topic. 6. Statistical society Statistical society in this study includes all the branches of Ansar Bank. The required information was gathered annually from Statistical data was gathered annually because of the nature of the ongoing variables. 7. Data Analyzing The chosen method in this research for analyzing data has two forms of Descriptive and causal. By descriptive method were going to analyze the data of Ansar Bank interest margin rate during Also for casual analysis, we used economical testing techniques. Thus after introducing the economical testing model and related variables and analyzing long-term convergence of modal variables and their stability, we used the OLS method to test hypo theses and evaluate the chosen model. 8. The used variables in this model This model includes two groups of variables named independent variables and dependent variables. The dependent variable in this model is bank interest margin rate (Y) and the independent variables(x) are mentioned below. Y= a 0 + bx/+bx 2 +bx 3 +bx 4 +bx 5 +bx 6 +bx 7 x / =Industrial produce growth indicator x 2 = Banking centralized indicator COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1086

4 x 3 = Inflation rate x 4 = lawful money supply rate x 5 = Banks stock of deposit market x 6 = The proportion of operating costs to the whole loans x 7 = The proportion of outstanding claims and the last due date of bank to the whole loans The measurement of the variables of research The main variables of the research include: bank interest margin rate, inflation rate, lawful money supply rate, banking industry indicator, the proportion of the outstanding claims and bank, last due date to the whole loans, Each economical bank ' s stock in deposit market and industrial productions indicator. 9.The method of measurement of variable in the research Bank interest margin rate = The proportion of the outstanding claims and banks last due date to the whole loans= The proportion of operating costs to the whole loans = 10. Conclusion = % 79R-Sq(adj) Model results Predictor COEF SE COEF T P Constant X X X X X X X 7 = 79 R-Sq x x x x x x x = Y First hypothesis: The result of testing the first hypothesis by economical testing (OLS) shows that in error level of 5% and freedom degree of 128 have p higher than 5% between bank interest margin rate in Ansar Bank and the proportion of outstanding claims and banks last due date to the whole banking loans, there isn t a meaningful and direct connection. This means rejecting the first hypothesis. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1087

5 Second hypothesis: The result of testing the second hypothesis by economical testing (OLS) shows that in error level of 5% and freedom degree of 12 and having p less than 5% and between interest margin rate in Ansar Bank, there is a direct and meaningful connection. This shows that the second hypothesis would be accepted. Third hypothesis The result of testing the third hypothesis by economical testing (OLS) show that in error level of %5 and freedom degree of 12 and having p more than %5 between interest margin rate in rate in Ansar Bank and each commercial bank s stock of deposit market there isn t a direct and meaningful connection. This means the third hypothesis is rejected. Fourth hypothesis The result of testing the fourth hypothesis by economical testing (OLS) shows that in the error level of %5 and freedom degree of 12 and having p less than %5 between bank interest margin rate in Ansar Bank and centralized banking indicator, there is a direct and reasonable connection and this Means the fourth hypothesis would be accepted. Fifth hypothesis The result of testing fifth hypothesis by economy testing (OLS) shows that in the error level of 5% and freedom degree of 12 and having p more than 5% between bank interest margin rate in Ansar Bank and legal supply rate there isn t a direct and meaningful connection. This means the fifth hypothesis should be rejected. Sixth hypothesis The result of testing the sixth hypothesis by economy testing (OLS) shows that, in error level of 5% and freedom degree of 12 and having P more than 5% between bank interest margin rate in Ansar Bank and industrial production growth. Seventh hypothesis The result of testing the seventh hypothesis by economy testing (OLS) method shows that in the error level of 5% and freedom degree of 12 and having P less of 5% and freedom bank interest margin rate in Ansar Bank and inflation rate there is a direct and meaningful connection. This means the seventh hypothesis will be accepted. 11. Conclusion and suggestions On the strength of the applied hypothesis in this study we come to this conclusion that the second, fourth. And seventh hypotheses will be affirmed. That means with increasing the proportion of operating costs to the whole loons the bank interest margin rate goes up and also the increase in inflation rate and centralized banking industry indicator will lead to increase in bank interest margin rate that it is in accordance with theoretical expectations. The other hypotheses were not accepted due to statistical reasons. That means legal supply rate and industrial produce growth and the proportion of outstanding claims and the last due date of banking system to the whole loons and also each commercial banks stock in deposit market have no influence on interest margin rate because of statistical reasons and in the sectional study bigger banks will be able to apply a higher interest margin rate. In the present situation with deleting of the maximum of credits, monetary authorities can rely less on direct devices that don t have enough efficiency, so it is expected along with, that the boosting and increasing the flexibility of indirect devices such as legal deposit rate the efficiency of monetary policies increase too. In order to reduce operating costs in Ansar Bank, we suggest to reduce the expenses by applying reforms in laws and regulations of efficient observation systems on financial and non financial performances. By creating economical infrastructures reliant on the market though private business, reforms in regulations and allowing. Banks and foreign credit institutions, we can have competitive banking system. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1088

6 Because with applying competitive system, banks will reduce their expenses to decrease the last price of facilitates and on the other hand by reducing market share in deposit market and facilities, their exclusive power will be decreased. Reducing the stock of withholding validities from banks facilities can be one of the biggest reforms in banking system that government can administer it. Although in the present study the effect of inflation on bank interest margin rate was accepted, always high inflation is one of the major problems of ongoing economies. So it can be concluded that the main action for improving banking system is through reducing inflation, and forcing governments to follow the scientific frameworks and stay away from political policies in planning annual budget to have a better economy. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1089

7 References Obde tabrizi, H.1384, private Banks and rebuilding of state banks, banking and monetary research college. Karami,1385, economical research, 6th year, number21. Kemijani, autumn,1385, analyzing the effects of money disorder on economical growth, economical research, 6th year, number21. Islamic Parliament research center, shahrivar, 1383, difference between deposit interest and bank facilities. Afanasieff, T., Priscilla, L, and Marcio,N., 2002, "The Determinants of Bank Interest Spreads in Brazil", BCB Working Paper No.46 Barajas,A., Roberto S. and Natalia, S, 1999, "Interest in Banking in Colombia, " IMF Staff Papers, Vol.46,No.2 Mlachila, M., and Chirwa, E.,2002, "Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi" IMF Working Papers. Ho,T.& Saunders, A..1981, "The determinants of bank interest margins, theory and Empirical evidence" COPY RIGHT 2012 Institute of Interdisciplinary Business Research 1090