Abstract

In spite of the reforms undertook during the 1980s and 1990s in favour of financial deepening, the spread between the lending rate and the deposit rate is still high in the member countries of the Central African Economic and Monetary Community (CAEMC). Thus, the aim of this study is to investigate the determinants of banking spread in those countries. In that vein, the study employs two-step regression proposed by Ho and Saunders using country-level data from 2000 to 2010. On one hand, the study controlled for capital inflows and natural resources endowment. On the other hand, the study took into consideration the legal and institutional framework of the sample countries and the excess liquidity prevailing their banking systems. The results revealed that among bank-specific characteristics, bank asset, doubtful loan, and the volume of credit significantly determine the observed spread. As for macroeconomic characteristics, oil rents, foreign direct investment (FDI) inflows, and real gross domestic product (GDP) growth significantly affect banking spread. Meanwhile, political stability, corruption, government effectiveness, regulatory quality, and bank concentration in the deposit market are the significant institutional determinants of the interest rate spread in CAEMC countries.

Key words: Panel Data, Commercial Banks, Financial Intermediary, Central Africa.