Determinants of Interest Rate Spreads in Bulgaria

This scientific paper analyses the factors affecting the interest rate spreads of commercial banks in Bulgaria. The Engle–Granger two-step method (1987) and the bounds testing approach of Pesaran et al. (1999, 2001) are applied. The main findings of the paper are that the interest rate spreads dynamics in Bulgaria in the period of Q1.2004 – Q3.2014 was under the long-term influence of factors such as: economic activity, market concentration, foreign ownership, external liabilities, profit margins, loan to asset ratio, loan to deposit ratio, house prices, inflation, interbank lending rates and stock prices. The short-term determinants of the interest rate spreads include: loan to deposit ratio, foreign ownership, unemployment and market concentration. The global financial crisis and its projection on the Bulgarian economy and the Corporate Commercial Bank's insolvency are among the developments increasing interest rate spreads