Using time series monthly data over the period March of 2004–June of 2010, this study investigates the determinants of interest rate spreads in Mongolia. Results from the study show that, the most influential factor is bank risk aversion. Rising credit risk due to distress borrowing are also associated higher risk premiums on bank lending rates. Increase in non-interest bearing reserve requirements are observed to result in a widening of banking spread as banks face reduced liquidity.

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