This thesis investigates the factors determining the spread between the lending and borrowing rates in the banking sector of the Gambia. We adopted a macro approach to the investigation of interest rate spreads. We used consolidated banking sector data which allowed us to focus on the market structure and macroeconomic determinants of interest rate spreads in the Gambia’s banking sector. In this respect, an important contribution made in this paper is the inclusion of macro-policy indicators not included in previous studies. So in addition to the traditional macroeconomic indicators, this thesis investigates the effect of government policy measures, such as Treasury bill and discount rates, public-sector crowding out, government deficit financing, and money supply activities.

This is an important addition to our understanding of the operation of Gambian banking system, as it highlights the policy directives or indicators which will have the greatest and most direct impact in reducing spreads and increasing the efficiency of the banking sector in the Gambia.

The results show that only exchange rate as an indicator has been strongly statistically proven to be significantly related to interest rate spread in the Gambia. The other two indicators; bank development and money supply proxy variable are also significant but with inconsistent signs.

Allen, L. (1988). The determinants of bank interest margins: A note. Journal of Financial and Quantitative Analysis, 23, 231-235.
Angbazo, L. (1997). Commercial bank net interest margins, default risk, interest rate risk and off-balance sheet banking. Journal of Banking & Finance, 21, 55-87.
Barajas, A., Steiner, R., & Salazar, N. (1999). Interest spreads in banking in Colombia, 1974-96.
Beck, T., & Hesse, H. (2009). Why are interest spreads so high in Uganda? Journal of Development Economics, 88, 192-204.
Brock, P. L., & Rojas Suarez, L. (2000). Understanding the behavior of bank spreads in Latin America. Journal of Development Economics, 63, 113-134.
CBG. (2010). Stament of Accounts of The Gambia. from Central Bank of The Gambia: http://cbg.gm/archives/financial_statements.html
Chirwa, E. W., & Mlachila, M. (2004). Financial reforms and interest rate spreads in the commercial banking system in Malawi.
Crowley, J. (2007). Interest rate spreads in English-Speaking African countries.
Cuadra, G., & Sapriza, H. (2008). Sovereign default, interest rate and political uncertainty in emerging markets. Journal of International Economics, 76, 78-88.
D'Amato, M., & Pistoresi, B. (2001). Interest rate spreads between Italy and Germany, 1995-1997. Journal of Applied Financial Economics, 11, 603-612.
Demirguc Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest rate margin and profitability: Some international evidence. World Bank Economic Review, 13, 379-408.
Ebner, A. (2009). An empirical analysis on the determinants of CEE government bond spreads. Emerging Markets Review, 10, 97-121.
GBoS. (2010). Statistics of The Gambia. Retrieved April, 2011, from Gambia Bereau of Statistic: http://www.devinfo.info/gaminfo/Statistics.aspx
Gelos, R. G. (2006). Banking spreads in Latin America.
Gripsurd, J., & Weibull, L. (Eds.). (2010). Media, Markets & Public Spheres: Intellect, Limited.
Hassler, U., & Nautz, D. (2008). On the persistence of the Eonia spread. Economic Letters, 101, 184-187.
Ho, T., & Sauders, A. (1981). The determinants of bank interest margins: Theory and emprical evidence. The Journal of Finance and Quantitative Analysis, 16, 581-600.
Ito, T. (2008). The interest rate spreads and monetary policy in Japan. Journal of Applied Financial Economics letters, 3, 1-4.
Jayaraman, T. K., & Sharman, R. (2002). Why is interest rate spread high in Fuji? Results from a preliminary study.
Kwark, N.-S. (2002). Default risks, interest rate spreads, and business cycle: Explaining the interest rate spread as a leading indicator. Journal of Economic Dyanamics & Control, 26, 271-302.
Larry Lang, Robert Litzenberger, & Liu, A. L. (1998). Determinants of interest rate swap spreads. Journal of banking and finance, 22, 1507-1532.
Marshall, A. P., & Ho, C. N. (2006). Determinants of swap spreads of United kingdom. Journal of Applied Financial Economics letters, 2, 305-309.
Min, H.-G., Lee, D.-H., Nam, C., Park, M.-C., & Nam, S.-H. (2003). Determinants of emerging-market bond spreads: Cross-country evidence. Global Finance Journal, 14, 271-286.
Moore, W., & Craigwell, R. (2000). Market power and interest rate spreads in the Caribbean.
Nakane, M. I., Afanasieff, T. S., & Lhacer, P. M. V. (1999). Determinants of bank interest spread in Brazil.
Ndung'u, N., & Ngugi, R. W. (2000). Banking sector interest rate spreads in Kenya.
Randall, R. (1998). Interest rate spread in the Eastern Caribbean.
Robinson, J. W. (2002). Commercial bank interest rate spread in jamaica: Measurement, trend and prospects.
Rockerbie, D. W. (1993). Explaining interest spreads on sovereign eurodallar loans: LDCs versus DCs, 1978-84. journal of Applied Economics, 25, 609-616.
Saunders, A., & Schumacher, L. (2000). The determinants of bank interest rate margins: An international study. Journal of international Money and Finance, 19, 813-832.
Smith, T. (2001). Bank spreads and business cycle.
Sologoub, D. (2006). The determinants of bank interest margins and profitability: Case of Ukraine.
Tang, D. Y., & Yan, H. (2010). Market conditions, default risk and spreads. Journal of Banking & Finance, 34, 743-753.